Tag Archives: Federal Reserve

Wall Street sinks after Fed fails to impress

(Reuters) – Wall Street dropped sharply on Wednesday after the U.S. Federal Reserve frustrated stock investors hoping for a strong sign it might scale back future interest rate hikes because of recent financial and economic turmoil.

In a widely expected decision, the Fed kept interest rates unchanged and it said it was “closely monitoring” global economic and financial developments, but it maintained an otherwise upbeat view of the U.S. economy.

With plummeting oil prices and fears of slower economic growth in China sending the S&P 500 down 8 percent in 2016, investors saw the Fed’s conciliatory comments as a step in the right direction.

But some on Wall Street had hoped an even stronger indication that policymakers might scale back the pace of future interest rate hikes.

“It sounds like they are unimpressed with what has happened in the markets, that it has been insufficient to change their plans. That’s the takeaway and it’s why the market is going down,” said Stephen Massocca, Chief Investment Officer of Wedbush Equity Management LLC in San Francisco.

That was enough to reverse earlier gains driven by a jump in crude prices after Russia said it was discussing the possibility of cooperation with OPEC and U.S. data showed an increase in short-term demand.

With fourth-quarter corporate reports pouring in, earnings of S&P 500 companies on average are expected to drop 4.9 percent, according to Thomson Reuters data. Excluding energy, earnings are expected to grow 1.3 percent.

The Dow Jones industrial average ended down 1.38 percent at 15,944.32 points while the S&P 500 lost 20.68 1.09 percent to 1,882.95. The Nasdaq Composite dropped 2.18 percent to 4,468.17.

Eight of the 10 major S&P sectors fell, led by the tech sector’s 2.46-percent descent.

Apple’s shares fell 6.57 percent after the iPhone maker reported its slowest-ever rise in shipments on Tuesday, while Boeing lost 8.9 percent, its biggest fall since August 2011.

Textron slid 13.36 percent while Tupperware sank 14.8 percent. Both companies’ revenue missed estimates.

A weaker-than-expected 2016 forecast helped push VMware shares down 9.82 percent.

Among the few gainers, Biogen rose 5.15 percent after its profit and revenue beat expectations.

After the bell, Facebook posted fourth-quarter revenue above expectations and its stock rose 4.7 percent.

Declining issues outnumbered advancing ones on the NYSE by 1,900 to 1,145. On the Nasdaq, 1,943 issues fell and 816 rose.

The S&P 500 index showed three new 52-week high and seven new lows, while the Nasdaq recorded 10 new highs and 89 lows.

About 8.8 billion shares changed hands on U.S. exchanges, below the 8.5 billion daily average for the past 20 trading days, according to Thomson Reuters data.

(Reporting by Abhiram Nandakumar in Bengaluru; Editing by Anil D’Silva and Nick Zieminski)

Fed keeps interest rates steady, closely watching global markets

WASHINGTON (Reuters) – The U.S. Federal Reserve kept interest rates unchanged on Wednesday and said it was “closely monitoring” global economic and financial developments, signaling it had accounted for a stock market selloff but wasn’t ready to abandon a plan to tighten monetary policy this year.

The decision by the central bank’s rate-setting committee was widely expected after a month-long plunge in U.S. and world equities raised concerns an abrupt global slowdown could drag on U.S. growth.

Fed policymakers said the economy was still on track for moderate growth and a stronger labor market even with “gradual” rate increases, suggesting its concern about global events had diminished but not squashed chances of a rate hike in March.

“The committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation,” the Fed said in its policy statement following a two-day meeting.

Wall Street fell after the statement, with the Standard & Poor’s 500 index closing down more than 1 percent. Prices for U.S. Treasuries were mixed, while the dollar extended losses against a basket of currencies.

In an indication the Fed was taking global risks seriously, a prior reference to the risks to the economic outlook being “balanced” was removed from its statement. Instead, it said it was weighing how the global economy and financial markets could affect the outlook.

“It is clear that several FOMC members have become more worried,” said Harm Bandholz, an economist at Unicredit in New York, referring to the Fed’s rate-setting Federal Open Market Committee.

Shrugging off economic weakness in China, Japan and Europe, the Fed last month raised its key overnight lending rate by a quarter point to a range of 0.25 percent to 0.50 percent and issued upbeat economic forecasts that suggested four additional hikes this year.

Wall Street’s top banks, however, expect only three rate increases before the end of the year, according to a Reuters poll released after the Fed’s statement on Wednesday. That was in line with expectations earlier in January.

Investors are betting on one quarter-point rate increase in 2016.

Prices for Fed funds futures on Wednesday showed traders had pushed back bets for the next rate hike to July from June and modestly trimmed bets on a March hike.

“The Fed has maintained its composure in the face of global pressures,” said Joe Manimbo, an analyst at Western Union Business Solutions.

JOB GAINS

U.S. exports took a hit last year, largely due to the impact of a strong dollar, but consumer spending accelerated and overall employment surged by 292,000 jobs in December.

The Fed said on Wednesday that a range of recent labor market indicators, including “strong” job gains, pointed to some additional firming in the job market.

Oil prices have also plummeted this year, which could keep U.S. inflation below the Fed’s 2 percent target for longer, but the central bank said it still expects the downward inflationary pressure from lower energy and import prices to prove temporary.

Policymakers will be able to sift through the January and February U.S. employment reports before their next policy meeting in March.

(Reporting by Jason Lange and Howard Schneider; Additional reporting by Lindsay Dunsmuir; Editing by David Chance and Paul Simao)

Fed Raises Interest Rates, Citing Ongoing U.S. Recovery

By Howard Schneider and Jason Lange

WASHINGTON (Reuters) – The Federal Reserve hiked interest rates for the first time in nearly a decade on Wednesday, signaling faith that the U.S. economy had largely overcome the wounds of the 2007-2009 financial crisis.

The U.S. central bank’s policy-setting committee raised the range of its benchmark interest rate by a quarter of a percentage point to between 0.25 percent and 0.50 percent, ending a lengthy debate about whether the economy was strong enough to withstand higher borrowing costs.

“With the economy performing well and expected to continue to do so, the committee judges that a modest increase in the federal funds rate is appropriate,” Fed Chair Janet Yellen said in a press conference after the rate decision was announced. “The economic recovery has clearly come a long way.”

The Fed’s policy statement noted the “considerable improvement” in the U.S. labor market, where the unemployment rate has fallen to 5 percent, and said policymakers are “reasonably confident” inflation will rise over the medium term to the Fed’s 2 percent objective.

The central bank made clear the rate hike was a tentative beginning to a “gradual” tightening cycle, and that in deciding its next move it would put a premium on monitoring inflation, which remains mired below target.

“The process is likely to proceed gradually,” Yellen said, a hint that further hikes will be slow in coming.

She added that policymakers were hoping for a slow rise in rates but one that will keep the Fed ahead of the curve as the economic recovery continues. “To keep the economy moving along the growth path it is on … we would like to avoid a situation where we have left so much (monetary) accommodation in place for so long we have to tighten abruptly.”

New economic projections from Fed policymakers were largely unchanged from September, with unemployment anticipated to fall to 4.7 percent next year and economic growth hitting 2.4 percent.

The Fed statement and its promise of a gradual path represented a compromise between policymakers who have been ready to raise rates for months and those who feel the economy is still at risk from weak inflation and slow global growth.

“The Fed is going out of its way to assure markets that, by embarking on a ‘gradual’ path, this will not be your traditional interest rate cycle,” said Mohamed El-Erian, chief economic advisor at Allianz.

Fed officials said they were confident the situation was ripe for them to make a historic turn in policy without much disruption to financial markets, which had expected the hike this week.

U.S. stocks rallied on the news, in part because the Fed made clear it would proceed slowly with further tightening. Yields on U.S. Treasuries rose, while the dollar was largely unchanged against a basket of currencies. Oil prices fell sharply before paring losses.

POLICY STILL ACCOMMODATIVE

Yellen on Wednesday said the Fed had no desire to curb consumers from spending or businesses from investing. She emphasized that interest rates remained low even after the rate hike, near levels economists regard as appropriate for a recession.

“Policy remains accommodative,” Yellen said. “The U.S. economy has shown considerable strength. Domestic spending has continued to hold up.”

Fed policymakers’ median projected target interest rate for 2016 remained 1.375 percent, implying four quarter-point hikes next year. Based on short-term interest rate futures markets, traders expect the next rate hike in April.

A Dec. 9 Reuters poll showed economists forecasting the federal funds rate to be 1.0 percent to 1.25 percent by the end of 2016 and 2.25 percent by the end of 2017.

The rate hike sets off an immediate test of new financial tools designed by the New York Fed for just this occasion, as well as a likely reshuffling of global capital as the reality of rising U.S. rates sets in.

To edge the target rate from its current near-zero level to between 0.25 percent and 0.50 percent, the Fed said it would set the interest it pays banks on excess reserves at 0.50 percent, and would offer up to $2 trillion in reverse repurchase agreements, an aggressive figure that shows its resolve to pull rates higher.

The impact on business and household borrowing costs is unclear. One of the issues policymakers will watch closely in coming days is how long-term mortgage rates, consumer loans and other forms of credit react to the rate hike.

(Additional reporting by Lindsay Dunsmuir and David Chance in Washington, Ann Saphir in San Francisco and Jonathan Spicer and David Gaffen in New York; Editing by Paul Simao)

Federal Reserve Expected to Raise Interest Rates Wednesday

The U.S. Federal Reserve is widely expected to vote to raise a key interest rate for the first time in nearly a decade when it meets on Wednesday, according to multiple published reports.

The effects of such a vote could have wide-ranging implications throughout the economy, affecting things like interest on savings accounts, mortgages, auto loans and credit cards.

The rate the Federal Reserve is considering raising is called the effective federal funds rate. It deals with how banks borrow money from one another, thus setting a bar for all other lending.

The rate has been close to nothing since 2008, during the Great Recession. The rate was at 5.26 percent in July 2007, according to the Federal Reserve Bank of St. Louis, but the bank lowered the rate nearly every month through the end of 2008 to help jumpstart a struggling economy.

The rate has not been raised since that. In fact, it hasn’t been raised at all since June 2006, when the Federal Reserve raised it to the 5.26 percent level at which it stood until the recession.

But the economy is in better shape than it was during the recession. The civilian unemployment rate is down to 5 percent, according to the Federal Reserve Bank of St. Louis. In 2009, after the fallout from the financial crisis, it reached 10 percent. That was its highest level in 27 years.

Why is the Federal Reserve even considering raising the rate again? Essentially, the bank needs to find a balance that ensures the economy stays stable and healthy.

The Washington Post reported that if the Federal Reserve waits too long to raise the rate, it could create bubbles in the stock market or rampant inflation, where prices rise at a rate that employee wages aren’t able to match. But if the Federal Reserve hikes the rate too early, it could jeopardize the recovery — especially if people can’t obtain affordable loans for what they need.

A vote to raise the rate is seen as a vote of confidence for the economy. CBS News reported if the Federal Reserve doesn’t act Wednesday, especially because just about everyone on Wall Street is expecting it to, it could lead to a decline in the stock market because it would suggest the bank’s policymakers think the economy couldn’t cope with a rate increase, even one that’s fractional.

And any rate increase is expected to be slight. CNN reported that the Federal Reserve is expected to raise rates slowly, from its current level of about .12 percent to a new level near .25 percent. Any effects on the economy aren’t expected to be felt for several months, according to the report.

Still, some question the timing of the increase and whether the economy is truly as healthy as evidence suggests.

Fed Announcement Causes Roller Coaster Market Ride

The Dow Jones Industrial Average rode a roller coaster Thursday afternoon following the announcement that the Federal Reserve would be holding interest rates at their current level.

Within minutes of the announcement, the Dow fell almost 90 points in a span of two minutes before gaining all of it back in the next six minutes.  The Dow then jumped about 30 minutes later to almost a 200 point gain on the day before slowly tumbling to finish the day 65 points lower at 16,674.74.

The S&P 500 followed a similar track to the Dow, falling in the minutes after the announcement and having a huge peak around 3 p.m. before ending the day down 5 points at 1,990.20.

The NASDAQ also road the roller coaster but because of early gains in the day only dipped into the red during the initial post-announcement fall.  The NASDAQ composite finished the day 4.71 higher at 4,893.95 to continue a week of steady gains.

Federal Reserve Holds the Line on Interest Rates

The Federal Reserve announced Thursday afternoon that they will be holding the line on interest rates, extending to 10 years the amount of time since the last increase of the key interest rate.

The Federal Open Market Committee (FOMC) statement said they see “economic activity is expanding at a moderate pace. Household spending and business fixed investment have been increasing moderately, and the housing sector has improved further; however, net exports have been soft.”

The FOMC also said they focused on the slight increase in employment totals but also inflation below expectations and declines in energy prices and the cost of non-energy imports.

“To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate,” the FOMC statement read.

The Fed did increase their view of the economy for the year.  They predict a 2.1% increase this year, up from a 1.9% prediction.

For the first time this year, the vote was not unanimous.  Richmond Fed President Jeffrey Lacker voted to raise the rate.

Stocks Fall on Concerns over Oil Prices, Fed Minutes

The stock markets fell more than one percent under pressures from low oil prices and the uncertainly from the Federal Reserve over the raising of interest rates.

The Dow Jones Industrial Average (DJIA) was over 300 points lower Thursday after a 163 point drop on Wednesday.  The pace means the DJIA will have its worst day since losing 350 points on June 29th.

Markets around the world were impacted as well.

Japan’s Nikkei 225 falling 0.9%, the Hang Seng index in Hong Hong off 1.8%, the Shanghai composite in mainland China down 3.4%, Germany’s DAX off 2.3% and the CAC 40 in Paris off 2.1%.

“I think the oil and the geopolitical problems are the real problems for the market because we’re looking at lower global economic growth, and lower global growth is going to weigh on the U.S. as well,” Peter Cardillo, chief market economist at Rockwell Global Capital, told CNBC.

Some analysts, however, say that the movement by China last week to devalue the Yuan over two consecutive days is also impacting the market.

“There is heightened uncertainty that began with yuan devaluation last week, while overall China’s growth is slowing faster than thought. This is weighing on confidence,” Randy Frederick, managing director of trading & derivatives at Schwab Center for Financial Research, told CNBC.

(Update 8/20/1015 at 4:48PM CT: Since this story was originally reported the dow has dropped 2% and is currently at 358.04.)

US Economy Slows In Second Quarter

A drop in consumer spending resulted in the US economy growth slowing to an annual rate of 1.5% according to the Commerce Department. That’s down almost a full percentage point from the first quarter of the year.

The Commerce Department also put some of the blame on an increase in imports during the same time period.

“As campaigning [for President] gets serious, the economy is losing momentum not gaining,” Mark Gregory of the BBC reported. “That’s bad news for President Obama’s chances of hanging onto his job in November.” Continue reading →