Dow slides to 2018 low after Fed disappoints

Dow slides to 2018 low after Fed disappoints

The Stoxx Europe 600 Index increased 0.3 per cent. Markets are being driven by fear rather than fundamentals. That's a substantial move for that benchmark lending rate.

The euro rose 0.2 per cent to $US1.1382.

Gold miners lost some of yesterday's lustre on subdued precious metals prices, with a 3.11 per cent dip for Northern Star, a 3.08 per cent hit for Evolution, and a 0.65 per cent loss for Newcrest. This, and what's likely to play out over the next few weeks, illustrates a bigger phenomenon: the threat that the Fed and other central banks are increasingly in a no-win situation, due to factors mostly outside their control.

Some, including me, expressed concerns about the risks and unintended consequences of central banks continuously "goosing" markets.

"We expect additional rate hikes will invert the three-months to 10-year yield curve, which is a reliable signal for a bear market for stocks and a coming recession for both the USA and the rest of the world", said Jeffrey Kleintop, chief investment strategist at Charles Schwab in Boston. The Dow Jones industrial average swung from a gain of 380 points just before the 2 p.m.

U.S. stocks are on track for their biggest December decline since the Great Depression in 1931. The dollar stood at ¥112.20, slightly off the seven-week low of ¥112.09 touched just before the Fed. The Nasdaq plunged 8.4% on the week, its worst since November 2008.

December 19: The FOMC raised the fed-funds rate target range by 25 basis points at the conclusion of their two-day meeting, pushing the target range midpoint to 2.375%.

This week's meeting was arguably the most highly anticipated Fed gathering of the year, given the backdrop of market turmoil spawned by trade wars, plunging oil prices and worries over slowing global economic growth.

Trump, who chose Powell to lead the Fed, is expressing concern that the Fed's rate increases could derail the economy.

Trump has frequently attacked Powell, who was sworn in early last February, and the Fed for raising borrowing costs this year, especially as USA stocks have tumbled and yields on U.S. government debt have begun to signal a possible recession.




China's benchmark Shanghai Composite and the blue-chip CSI 300 fell 1.3 percent and 1.5 percent, respectively, while Hong Kong's Hang Seng was off 1.5 percent.

The Japanese yen gained 0.1 percent to 112.39 per dollar. Nonetheless, the ongoing slide in this yield spread for government bonds is a sign that the crowd is telling the Fed that monetary policy is becoming too hawkish for the current economic outlook.

Trump has always been opposed to rising interest rates on the basis they might hamper economic growth, and has in the past called the Fed "crazy" and "loco" for doing so.

"I think the run-off of the balance sheet has been smooth and has served its goal, and I don't see us changing that", Powell told reporters after the Fed raised its Federal funds rate to a range of between 2.25 per cent to 2.5 per cent.

In particular, the FOMC chose to reduce the number of rate hikes to two in 2019 (as we suggested in this post yesterday), down from three in the previous communication.

In addition, the median estimate among policy makers for the so- called neutral rate in the long run fell to 2.75 per cent, from 3 per cent in the previous forecasts from September.

Had the Fed announced a pause in rate hikes, it might have panicked investors about a sinking economy.

The dispute with China, even with a ceasefire declared until March 1 for negotiations, has created fears of slowing United States and global growth, and caused stock markets to retreat, with Wall Street wiping out all of the 2018 gains.

The decision to raise borrowing costs again is likely to anger Trump, who has repeatedly attacked the central bank's tightening this year as damaging to the economy.

US President Donald Trump has stepped up his pressure on the Federal Reserve by warning the central bank against making "yet another mistake".

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