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Federal Reserve

US stocks tumble as Federal Reserve raises rates

  • Policymakers raised rates for the fourth time this year and lowered their forecast for hikes next year to two from three
  • Investors had anticipated a less aggressive approach
PUBLISHED : Thursday, 20 December, 2018, 5:36am
UPDATED : Thursday, 20 December, 2018, 5:47am

US stocks careered to a 15-month low after Jerome Powell failed to quell investor angst that the Federal Reserve’s tightening policy will throttle economic growth.

The S&P 500 Index dropped 1.5 per cent after policymakers raised rates for the fourth time this year and lowered their forecast for hikes next year to two from three. Markets had been priced for just one.

Treasury yields slid and the dollar erased losses as Powell said the Fed’s balance sheet normalisation would continue “on automatic pilot.”

Investors had anticipated a less aggressive approach after US stocks tumbled into a correction amid concern that global growth is slowing.

“This hike is a vote of confidence in our economy for 2018, but essentially that’s a wrap,” said Mike Loewengart, vice-president of investment strategy for E*Trade Financial Corp. “We’re now in some uncharted territory as 2019 comes into focus.”

Amid the recent volatility in stocks and other risky assets, US President Donald Trump had stepped up pressure on the central bank to avoid more tightening in the run-up to the announcement.

Fed raises rates by 25 points, defying Trump and a sagging stock market

Powell said today that political considerations play no role in Fed policy.

The tech-heavy Nasdaq indexes underperformed Wednesday as Facebook tumbled as much as 7 per cent on mounting concerns over user privacy.

FedEx sank as much as 12 per cent after its executives warned that signs of a global trade slowdown are emerging.

Beyond the Fed, trade and politics remain dominant themes.

The US Senate will vote as soon as Wednesday on a bipartisan spending bill to avoid a partial federal shutdown and keep the government funded until February 8.

Meanwhile, Treasury Secretary Steven Mnuchin said America and China are planning to hold meetings in January to negotiate a broader trade truce.