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Mnuchin: Market reaction to Fed rate hike 'completely overblown'

21 Décembre 2018

As markets had expected, the U.S. Federal Reserve raised its benchmark interest rate by a quarter-point on Wednesday.

The Fed raised key overnight lending rate rates by 0.25 percent point as expected to a range of 2.25 percent to 2.50 percent. Yields on 10-year U.S. Treasuries have also been volatile, dropping to 2.82 percent this week after hitting a seven-year high of 3.26 percent in October.

Stocks usually end the year with a flourish, and December is usually the best month of the year for the market.

Despite the forecast for fewer hikes, investors sent stocks plunging once Chairman Jerome Powell began a news conference, apparently disappointed that Powell didn't go further to signal a slowdown in rate increases.

The S&P 500 index skidded 39.54 points, or 1.6 percent, to 2,467.42.

Benchmark oil tumbled more than 4.5 per cent, dragging the USA dollar lower too.

That will bolster investor expectations that the United States central bank will be more cautious about future monetary tightening next year, given global economic uncertainties.

MSCI's broadest index of Asia-Pacific shares outside Japan dropped 1.1 percent, with Australian shares also declining 1.3 percent to a two-year closing low.

The policy-setting Federal Open Market Committee also released its quarterly forecasts showing officials see economic growth moderating so that they now expect to increase the benchmark interest rate only twice next year rather than three times, as forecast in September.

Investors had hoped for a less aggressive approach amid concern that global growth is slowing, while Powell played down the impact of recent market turmoil on the USA economy.

But another message was clear in the policy statement issued after the Fed's last meeting of the year and Powell's comments: The US. economy continues to perform well and no longer needs the Fed's support either through lower-than-normal interest rates or by maintaining of a massive balance sheet.

His tweet comes a day after US stocks dropped again on Monday as another day of big losses took the market to its lowest level in more than a year. The Wall Street Journal reported that in the FOMC's latest notes, 11 of 17 members of the group anticipate no more than two interest rate increases in 2019.

The reasoning for any shift in the Fed's communications, some analysts say, is that it may want to pause in its credit-tightening to assess how the economy fares in the coming months in light of the headwinds it faces. Gradually rising interest rates have made home mortgages more expensive in the last year, growing from around 4 percent at the end of 2017 to a high of nearly 5 percent for a 30-year fixed-rate mortgage by early November, according to Freddie Mac.

The yen advanced against the dollar, which fell 0.8 percent to 111.60.

Both oil contracts slid Thursday, reversing strong gains from a day earlier on concerns about growth and USA oversupply, and tracking equity losses. Brent crude, used to price worldwide oils, slipped 5 percent to $54.35 a barrel in London.

"I believe that further rate hikes in 2019 will be met with a lot of volatility and, ultimately, could be the tipping point for a 2008-style crash".

"We're going to be letting incoming data inform our thinking about the appropriate path" of future rate increases, he said.

Taking all of this into equation the ASX futures are pointing to a 1 point fall. The euro gained to $1.1454 from $1.1447. Wholesale gasoline lost 4.6 percent to $1.32 a gallon and heating oil slid 3.1 percent to $1.75 a gallon.

Mnuchin: Market reaction to Fed rate hike 'completely overblown'