While you were sleeping: Fed hikes, signals more ahead

Thursday 15th December 2016

Wall Street and US Treasuries moved lower, while the greenback strengthened after the Federal Reserve increased its key interest rate for the first time in a year and signalled an accelerating pace of increases in next year’s borrowing costs.

“In view of realised and expected labour market conditions and inflation,” the Federal Open Market Committee said it agreed to raise its target interest rate by 25 basis points between 0.5 percent to 0.75 percent. The decision was unanimous.

The increase had been widely anticipated.

Fed policy makers now predict three quarter-point rate hikes next year, up from the two expected in the previous forecasts, based on median estimates for the fed funds rate of 1.375 percent in 2017.

“Job gains have been solid in recent months and the unemployment rate has declined,” the Fed said in a statement. “Market-based measures of inflation compensation have moved up considerably but still are low.”

Fed Chair Janet Yellen is scheduled to hold a press conference at 2.30pm in Washington.

Before the Fed announced its decision, Wall Street traded steady near record highs before retreating. In 2.17pm trading in New York, the Dow Jones Industrial Average fell 0.1 percent, while the Nasdaq Composite Index dropped 0.5 percent. In 2.02pm trading, the Standard & Poor’s 500 Index shed 0.2 percent.

In the Dow, slides in shares of Exxon Mobil and those of Verizon, down 1.3 percent and 0.8 percent respectively, outweighed gains in shares of American Express and those of Goldman Sachs, recently both trading 1.5 percent higher respectively.

US Treasuries fell, pushing yields on 10-year notes up to 2.49 percent, while yields on the two-year note rose to the highest in seven years, according to Bloomberg.

Separately, a Commerce Department report showed retail sales rose less than expected in November, rising 0.1 percent, following a 0.6 percent gain in October.

Even so, “today's report does little to change the multi-month trend of strong consumption growth," Andrew Hollenhorst, an economist at Citigroup in New York, told Reuters.

In Europe, the Stoxx 600 Index ended the day with a 0.5 percent slide from the previous close. The UK’s FTSE 100 Index fell 0.3 percent, Germany’s DAX Index shed 0.4 percent, and France’s CAC 40 Index dropped 0.7 percent.

Shares of Switzerland's Actelion sank 9 percent after Johnson & Johnson said it ended talks about a potential deal with the drugmaker.

BusinessDesk.co.nz

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