Dow Drops 106 Points As Rates Rise Goes From Good To Bad

What did the Fed say? Heck if we know. There was literally no surprise there. The rate hike was as expected. The removal of the "accommodative" line was expected. Even the strong suggestion of a rate hike in December was expected. The market did what was unexpected, except for those who paid attention to how it reacted to past rises: the market has fallen.

Does it mean something? Probably not. "My impression is that [Powell] is very happy with the performance of the economy and very comfortable with the FOMC's "progressive" march towards neutrality, "writes Stephen Stanley of Amherst Pierpont. "I think being neutral will be obvious, but things will probably become very interesting after we arrive, probably around mid-2019."

May we live interesting moments.

2:02 p.m. The Fed raised interest rates and removed the word "accommodating" from its monetary policy statement. And stocks do not seem too worried about it yet.

the S & P 500gained 0.3% to 2924.39, while the Dow Jones Industrial Averageincreased by 83.79 points, or 0.3%, to 26,576.00. the Nasdaq Compositeclimbed 0.5% to 8047.71. The 10-year Treasury yield declined 0.033 percentage points to 3.07%.

The Fed raised its benchmark interest rate by a quarter of a point to a range of 2% to 2.25%. And his statement gave up the sentence "The monetary policy stance remains accommodative, thus supporting strong labor market conditions and a sustained return to inflation of 2%".

None of this was unexpected, which could explain why equities rallied again after the announcement, at least in the beginning.

"It was almost a no-brainer, and this could cause some investors to scratch themselves a bit, given the uncertainty of the market, with commercial beards, an unstable real estate market and a rising federal debt," written E * Financial Trade"SMike Loewengart. But the Fed needs to set up its toolbox to deal with various economic conditions, making return to a standardized rate environment so important. "

Or maybe the economy is just strong enough to deal with it? Maybe But not everyone thinks so. "Our view is that the Fed will continue to gradually raise rates for now, but the authorities still underestimate the speed with which the economy will lose momentum next year," said economist Michael Pearce. as economic growth slows below its potential rate around the middle of next year, we expect the Fed to expect rate hikes and end up reducing rates by 2020.

Just in time for the next recession?

Write to Ben Levisohn at [email protected]