“This doesn’t read like a statement from a committee that is expecting to tighten again in March”, said Jonathan Wright, a professor at Johns Hopkins University in Baltimore and a former Fed economist.
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The Fed’s decision comes with investors on edge due to a almost relentless market decline since the last FOMC meeting. The Nasdaq composite index, which has a high concentration of tech stocks, fell 50 points, or 1.1 per cent, to 4,517. These factors combined to generate extreme volatility on Wall Street and contributed to the worst start to a calendar year for the USA stock market on record.
Apple’s disappointing guidance while reporting a revenue miss in its latest quarter weighed the tech sector (-2.5%) to the bottom of the day’s leaderboard, joined by consumer discretionary (-1.5%) and health care (-1.1%). Oil prices have plunged over the past year and a half because global supply is outstripping demand, creating a enormous fuel glut.
In a statement released Wednesday afternoon, the Fed acknowledged the increasingly uncertain global backdrop, which “was a clear nod at the fact that macro factors are impacting the Fed’s calculus”, said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange. The statement gave little indication that the future trajectory was discussed; projections in December indicated officials believe four rate hikes are likely in 2016.
The document noted that while economic growth is slow, labor conditions are improving and the persistently low level of inflation would change. And the unemployment rate remains a low 5 percent. They point instead to China’s economic troubles, the slide in oil prices and weakness in key areas of the global economy.
That disconnect – and uncertainty – between Fed expectations and the market’s is adding to the stock market turmoil, some say.
But Yellen and her fellow policymakers also mounted a staunch defence of their decision to raise United States interest rates last month, and repeated their belief that the USA economy would recover sufficiently to warrant further “gradual” interest rate hikes.
Asian stocks were subdued on Wednesday as a wait-and-see mood prevailed ahead of the Federal Reserve’s policy statement due later, and with sentiment fragile after a rout in Chinese shares the previous day.
The Dow Jones industrial average fell 274 points, or 1.7 percent, to 15,891 as of 3:14 p.m. Eastern time. Textron, which makes Cessna planes and Bell helicopters, also tumbled after its fourth-quarter profit and sales disappointed investors. The move amounted to only a small rise in the Fed’s still-extremely low target rate for overnight bank lending. The increase ended an unprecedented seven-year stretch of keeping the rate near zero to try to boost the economy. Still, they foresee a rebound to a rate of around 2 percent in the current January-March quarter.
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“While every meeting is technically live, our working assumption is that they’ll go at every other meeting this year”, Sweet says, indicating that he only expects to see policy changes at meetings with press conferences scheduled afterward.
