Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. Stocks didn't take the news well. It marked the central bank's ninth hike since late 2015. The split is in large part the mirror image of the situation faced by Powell's predecessors when sluggish growth contrasted with booming risk markets. The process, which is running at a $50 billion a month clip, is seen on Wall Street as leading to tighter financial conditions. "It " s not as dovish as expected, but I do believe the Fed will ultimately back off even further as we move into the new year".
Markets are also concerned about the ongoing trade dispute between the USA and China, which has lasted most of this year and shows few signs of easing, and forecasts for dip in economic activity next year.
Now the situation is reversed: A still-solid USA economy is not sufficient to dampen financial volatility and resist price declines in the context of structural market fragilities.
Powell did bow to what he called recent "softening" in global growth, tighter financial conditions, and expectations the U.S. economy will slow next year, and said that with inflation expected to remain a touch below the Fed's 2 per cent target next year, policymakers can be "patient".
Beyond the Fed, trade and politics remain dominant themes. It wasn't as supportive as some had hoped.
The US Federal Reserve raised the benchmark interest rate for the fourth time this year, eliciting a negative response from most global financial markets after the hike. This will allow him to explain any abrupt policy changes. "We do expect a very hard year for investors".
Ultra-low rates were used by central banks across the world during the crisis to try to aid economic recovery but policy makers in the USA are returning them to a more normal level as they focus on keeping a lid on inflationary pressures. It conducts monetary policy for the USA as well as regulates the banking sector and financial system of the United States economy.
The farther the market drops, the more the president worries that he is losing his most potent argument for re-election, several of the officials said. But the stock market instantly delivered a sour verdict.
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. For the first time since 2008, the funds rate is higher than core inflation and is just below the range of Fed members' estimates of the longer-run rate (2.5-3.5%).
This suggests that the so-called "Fed put" does in fact exist.
Now when the Federal Reserve decides to increase interest rates (or even if there is mere speculation that interest rates could go up), investors become bearish and sell their stocks because they anticipate that fewer people will have access to cheap loans that they can pour into the stock market.
Meanwhile the oil price also fell sharply, with a barrel of Brent crude slipping more than 3% to below $55 a barrel to its lowest level in more than a year. From its peak in November, the gauge has tumbled 14.5 percent. Last year, the Fed started to reduce the number of acquisitions for Treasury and mortgage-backed securities (MBS), bringing the total down to $4.14 trillion.
INTEREST ON EXCESS RESERVES - The crisis upended the Fed's method for controlling its target interest rate, which it previously had done by raising or lowering the supply of scarce reserves in the banking system.
In other words, Wall Street will likely have to endure more pain before the Fed steps in to ease it. Read the original article.
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