United States stocks fall, dollar climbs late after Fed statement

04 May, 2018, 14:19 | Author: Kathy Ellis
  • After the Bell Dow Slumps 174 Points as Markets Don’t Believe in Symmetry

But the dollar's rally came to a halt overnight after the Federal Reserve in its policy meeting did little to alter market expectations for further rate rises this year.

Data on Thursday showing euro zone inflation slowing further last month could cement that view, especially after the Fed showed no sign of swerving from its tightening path after its policy meeting, calling recent USA inflation rises sustainable. One of the main takeaways from the statement is that the Federal Reserve acknowledged that inflation is close to its target, but it appears this will not dictate the central bank accelerating its path of gradually raising United States interest rates.

Yet the Fed also emphasised the inflation target was "symmetric", suggesting it was not inclined to speed up its tightening plans. Investors had all but ruled out another increase at this week's meeting.

The median estimate in the March report indicated three increases this year, but RDQ Economics said the forecasts should "show four rather than three rate hikes in total for 2018".

Westpac, like the market, expects two more hikes this year. As the dollar is now in overbought territory, we expect the currency to continue giving up some of its recent gains.

The blue-chip index Dow Jones Industrial Average fell by 174.21 points or 0.72%, with largest sales happened in the last hour of trading.

USA economic data provided a more upbeat outlook.

The predictable thing is that rates are raised in USA twice as much, although re are a good part of members who see possible three additional increases to decided in March.

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The Fed also said while growth of household spending moderated from its "strong fourth-quarter pace, business fixed investment continued to grow strongly".

The officials said that "risks to the economic outlook appear roughly balanced".

After the March meeting, Fed Chairman Jerome H. Powell said a number of policymakers had brought up USA trade policy in their discussions and that business leaders in their regions had said trade policy was "had become a concern going forward".

But data released on Monday showed price gains are now effectively at the Fed's target.

The core price index, which excludes often volatile food and energy, was at 1.9 percent for the same period. But others were reassured the Fed was not ramping up market expectations for more rate hikes.

"At some point in the year ahead, the [Fed] may have to provide some more clarity about whether it actually intends to lift the federal funds rate to a "restrictive" level by the end of next year", Ryan Wang, US economist at HSBC, wrote in a research note on Wednesday. Likewise, the Japanese economy had enjoyed eight straight quarters of expansion, the longest such run since the 1980s.

These positive remarks about inflation and interest rates are good for precious metals silver and gold, as they are sensitive to rising U.S. interest rates.

Talks between Steven Mnuchin, U.S. treasury secretary and Liu He, Chinese vice premier are due to kick off later on Thursday.

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