Fed holds steady rates, sees economy on track

NEW YORK (Reuters) – The U.S. Federal Reserve held steady the economy on track.

"The Fed said in its latest policy statement, leaving intact its plans to continue raising rates gradually.

The statement reflected in the U.S. central bank's outlook for the economy, with inflation 2 percent target, unemployment falling and risks to the economic outlook appearing to be "roughly balanced."

MARKET REACTION:

STOCKS: The S & P 500 extended losses and was last down 0.6 percent. The Dow was firm then turned down 0.3 percent. BONDS: The 10-year U.S. Treasury bond yield rose to 3.2355 percent and the 2-year yield rose to 2.9691 percent. The five-year yield rose to its highest in a decade.

FOREX: The dollar index was up 0.58 percent.

COMMENTS:

GENE TANNUZZO, DEPUTY GLOBAL HEAD OF FIXED INCOME, COLUMBIA THREADNEEDLE, MINNEAPOLIS

"They did not take the opportunity to say financial tightened conditions. The omission of that is probably slightly important. This smells like a situation where I think they say 'Look we want to hike in December. We want to stick as close to the last statement. "There are those people who are not satisfied with this statement because they are looking for a more advanced version of the market. That's why we see it here. They are still on track. There are still open questions. Are we close to a neutral level? What is going to happen to the ultimate size of the Fed Balance Sheet? There is nothing in the data that would shake them from the current policy path. "

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK:

"It was in line with what I was looking for, and it was what the market was looking for.

"They cited consumer spending as strong, a tight labor market, and those two factors simply do not mean that the economy does not overheat.

"You can see the reaction in the (stock) market is basically nil, just mixed today, coming off a strong rally yesterday. I think they are going for the right reasons, not the wrong reasons, so that should not negatively affect equities. "

TIM GHRISKEY, CHIEF INVESTMENT STRATEGIST IN INVERNESS COUNSEL IN NEW YORK:

"There were a couple changes from the prior statement, nothing huge. Business investment, they have a growth rate. We see that in the data. That's really the only change of any significance. I do not think anything in here says the Fed has to tighten in December, but they remain on pace to tighten in December. They've telegraphed that very clearly. If you look historically while they're at the core PCE rate, which they admit is their average-term objective, historically they've overshot that rate on purpose an average of 0.9 percent. So we would expect the Fed not just to be in 2019. And everything being equal, they've achieved their objective.

"The stock market is always under way, especially after a Fed announcement, regardless of what was said. Because of that, it's a little bit of the Fed's view of being too aggressive and the market greets that favorably. "

RICK RIEDER, CHIEF INVESTMENT OFFICER OF GLOBAL FIXED INCOME, BLACKROCK INC, NEW YORK, NY

"The one interesting change in today's statement is a reference to some moderation in fixed investment business. The Fed is clearly beginning to recognize that it is working through the economy, in the form of tangible tightening of financial conditions. "

QUINCY KROSBY, CHIEF MARKET STRATEGIST, PRUDENTIAL FINANCIAL, NEWARK, NEW JERSEY

"The Fed did not mention recent market action. However, they did point to slowing in business investment. The expectation is that business investment would be more important because of the stronger economy, but primarily because of the tax cuts. They did not say this, but many companies are holding with China. The fact is that with more business spending, you have more help with the underlying economy. A slowdown in business spending can slow the underpinning of the stock market. "

"The question for the market is: Is the Fed data-dependent or is it maintaining a rigid schedule for rate hikes in 2019? What would cause the Fed to pause? It's clear from this statement today that they're looking for anything that could potentially slow the economy. Corporate spending is important, because business increases their GDP push up. "

JASON WARE, CHIEF INVESTMENT OFFICER, ALBION FINANCIAL, UTAH

"We had a bit of volatility around the report but it seems to have settled. I did not think there was anything in the way of surprises. The only change I think that is noteworthy is that growth of fixed investment business, that's got some attention, but it's hard to know what that means. It could be a whole host of factors. But what does that mean for Fed policy? I do not think its hawkish, its either dovish or neutral. "

YOUSEF ABBASI, GLOBAL STRATEGIST MARKET, NTL FCSTONE, NEW YORK

"There is very little that is new with this statement. The fact that they are highlighting the business of investment is definitely something to consider. The other side, obviously, household spending continues to grow strongly. It shows you that the Fed understands that we are going to go to the path of an economy that is healthy and doing very well.

"We have a strong economy and business investment is one thing we hope could turn around if we could get a trade deal done.

"For today, it's steady as we go. Again, expectations should have we pretty well grounded here. We knew what was coming, and the Fed delivered a benign statement. We should meander in the day's trading. "

BRAD MCMILLAN, CHIEF INVESTMENT OFFICER, COMMONWEALTH FINANCIAL NETWORK, WALTHAM, MASS

"I read the statement and I saw the word strong three times. The only real whisper of concern was that business investment had moderated. "

"What the statement overall is that they're still on track. December is in the plan and they do not see any reason to slow or stop the increases. "

"This is very much in line with what the market expected. I see the market today walking a little from the strong gains yesterday. There's no real news in the statement. "

JAMIE COX, MANAGING PARTNER, HARRIS FINANCIAL GROUP, RICHMOND, VIRGINIA

"Other than highlighting that business has changed in the year, that's only part of the statement that has really changed."

"The Fed has recognized that it is a part of the economy that is slowing a little bit, but it is not their gradual growth. Not yet anyway. We'll see if that materializes in the future. "

"There is really something to be had in the market, which would have been more dovish stance. So I think this is more of what we call a hawkish hold. "

"Markets have been pushing the Fed, I think, to reconsider its path of rate increases. In October, we had this very large market decline and some of it would have an influence on the Fed's decision to increase rates in December. I never thought that, and the Fed rarely ever used to short-term market volatility to deter it from its path. So I think that was false hope, and this is going to be steady. "

TOM SIMONS, MONEY MARKET ECONOMIST, JEFFERIES, NEW YORK:

"There was a little change in the statement, which was probably as expected. The changes that were made by the GDP data were released in late October. The characterizations of employment and inflation are also consistent with the expectations of the elderly. There has been no impact on the Treasury market. Aside from coming in as expected, it's also along the continuum of policy that has been spoken for a long time now. "

BORIS SCHLOSSBERG, DIRECTOR OF FX STRATEGY MANAGER, BK ASSET MANAGEMENT, NEW YORK

"The Fed has really kept to expectations. The only surprise is that they were not more hawkish. There have been more muted – that business investment had 'moderated' from its earlier pace. But apart from that they have not signaled any warning signs at all. "

"The dollar had come out of the statement, so it's not clear how much more it will come to the Fed coming in as expected."

"There is no change in Fed policy – they're going to keep raising interest rates by 25 basis points until something changes."