Market update: Federal Reserve cuts interest rates by 0.25% for the third time this year (30 Oct 2019)

3rd rate cut this year:  The Federal Reserve did exactly what was expected Wednesday by lowering its key policy interest rate one-quarter percentage point, to a range of 1.50%-1.75% and implying in the directive that it is unlikely to cut the fed funds rate again in December.
Fed Chair Powell, at his press conference, provided some dovish fodder with the suggestion that the Fed will need to see a significant move higher in inflation to raise interest rates to address such a development.

• Nasdaq Composite +24.7% YTD
• S&P 500 +21.1% YTD
• Russell 2000 +17.0% YTD
• Dow Jones Industrial Average +16.1% YTD

 

Market update: Federal Reserve cuts interest rates by 0.25% for the second time this year (18 September 2019)

FOMC Decision: Fed cuts its benchmark overnight lending rate 25 bps to 1.75-2.00% as widely expected

There was a 7-3 vote to cut the target range for the fed funds rate by 25 bps to 1.75-2.00%. Boston Fed President Rosengren and Kansas City Fed President George dissented on the belief the target range should be left unchanged at 2.00-2.25%. St. Louis Fed President Bullard dissented on the belief the target range should be cut by 50 basis points.

• Nasdaq Composite +23.2% YTD
• S&P 500 +19.9% YTD
• Dow Jones Industrial Average +16.4% YTD
• Russell 2000 +16.3% YTD

The FOMC voted 7-3 to cut the target range for the fed funds rate by 25 basis points to 1.75-2.00%, as expected. Price action leading up to the decision was muted and volatility quickly ensued after the policy directive. Buying conviction, however, was largely absent before and immediately after the decision as the market extended losses heading into Fed Chair Powell's press conference.

Key takeaways from the Fed's policy decision included:

(1) Voting members remained divided: St. Louis Fed President Bullard preferred a 50-basis points cut, while Boston Fed President Rosengren and Kansas City Fed President George preferred no change in the fed funds rate; (2) the median Fed member is suggesting there will be no more rate cuts in 2019 and 2020; and (3) the interest paid on excess reserve balances was lowered to 1.80% from 2.10% -- which could provide some stability in the repo market after the New York Fed injected more liquidity today.  

Selling pressure soon abated and stocks climbed to session highs, with the S&P 500 financials sector (+0.4%) providing influential leadership, as the Fed Chair Powell wrapped up his press conference. The utilities sector (+0.5%) outperformed, while the energy sector (-0.4%) underperformed as oil prices ($58.07/bbl, -1.30, -2.2%) continued to pull back. 

Mr. Powell said the Fed does not see a recession, is not interested in negative rates, and the repo issue has no implications for the economy or monetary policy. FedEx (FDX), meanwhile, provided a pessimistic view on the global economy. The company cut its FY20 EPS guidance due to a weakening global environment, driven by trade tensions and policy uncertainty.


President Donald Trump, who has been bashing the Fed on Twitter and demanding a larger cut, was predictably fast on his fingers.

President Trump, who has called Fed policymakers “boneheads” for not cutting rates enough, tore into Wednesday’s decision, saying Chairman Jay Powell and his colleagues have “no ‘guts.’” Trump says the Fed is risking U.S. competitiveness by keeping rates substantially higher than most of the rest of the developed world.

But Powell said he does not believe the Fed will ever resort to negative rates, instead relying on asset purchases and forward guidance, as it did following the 2008 financial crisis. For now, though, Powell foresees continued moderate growth for the U.S. economy.

Market update: FOMC announcement of no rate hike (20 March 2019)

The Federal Reserve says it will leave interest rates unchanged until it sees whether the economy stabilizes as the stimulative effect of 2017 tax cuts fades, and has downgraded its forecast of US economic growth slightly from 2.3% to 2.1%. Chairman Jerome Powell says the central bank expects the modest economic slowdown "with overall conditions remaining favorable."

• Fed leaves rates unchanged at 2.25-2.50%, as widely expected; Signals no rate hike this year.
• Leaving the fed funds rate intact was widely expected. Projecting zero rate hikes in 2019 -- and only one in 2020 -- along with providing an end date for its balance sheet runoff was less expected. These actions made it clear that the market doesn't have to fear the Fed like it did in the fourth quarter.
• A dovish Fed reignited slowdown worries

Fed Chair Jerome Powell says economy is in a good position and it will use monetary policy to keep it there

• Fed will remain patient on monetary policy.
• Conditions are less supportive of growth than in 2018.
• Notes weakness in Europe and China.
• Limited data for this year has been mixed; Notes Feb jobs number.
• Business fixed investment growing slower y/y;
• Inflation has been muted; 
• Brexit and trade negotiations pose risk to the outlook.

Closing Commodities: WTI oil prices settles above $60/barrel, near its HoD

• Metals Settlement Prices:
  • Apr gold settled today's session $5.60 lower (-0.4%) at $1301.25/oz
  • May silver settled today's session $0.05 lower (-0.3%) at $15.32/oz
  • May copper settled $0.01 lower (-0.3%) at $2.92/lb
• Agriculture Settlement Prices:
  • May corn settled unchanged at $3.71/bushel
  • May wheat settled $0.08 higher (+1.8%) at $4.64/bushel
  • May soybeans settled $0.01 higher at $9.05/bushel
• Energy Settlement Prices:
  • Apr crude oil futures rose $0.86 (+1.4%) to $60.20/barrel
  • Apr natural gas settled $0.05 lower (-1.7%) at $2.82/MMBtu
  • Apr RBOB gasoline settled $0.02 higher (+1.1%) at $1.91/gallon
  • Apr heating oil futures settled $0.02 higher (+1.0%) at $2.01/gallon

Market update: Federal Reserve hikes short-term rates by 0.25% (26 September 2018)

The Federal Reserve increased short-term interest rates on Wednesday, as expected, raising the fed funds target range by 25 basis points to 2.00-2.25%.

• Fed hikes interest rates, raises its economic outlook and drops 'accommodative' language
• Fed's Powell: Lack of 'accomodative' language a sign policy inline with expectations

Stocks were up modestly ahead of the release of the Fed's decision, which crossed the wires at 2:00 PM ET, and extended gains after the central bank removed the word 'accommodative' from its policy statement. However, that initial move was reversed, and then some, following a post-decision press conference from Fed Chairman Jerome Powell, during which he said the language change didn't signal a change in the Fed's path for rate hikes.

The S&P 500 was up as much as 0.5% on Wednesday but fell sharply in the final minutes of the session to finish with a loss of 0.3%. The tech-heavy Nasdaq Composite ended lower by 0.2%, the blue-chip Dow Jones Industrial Average finished lower by 0.4%, and the small-cap Russell 2000 lost 1.0%.

As for rate-hike projections, the Fed still appears to be on track to raise rates another 25 basis points in December, with the CME FedWatch Tool putting the chances at 79.2%. Beyond 2018, the Fed's dot plot showed expectations for three rate hikes in 2019 (unchanged from June) and one in 2020 (also unchanged from June).

U.S. Treasury yields fell following the Fed's policy announcement, although the 2-yr yield managed to close unchanged at 2.83%. The yield on the benchmark 10-yr Treasury note dropped four basis points to 3.06%. In currencies, the U.S. Dollar Index finished +0.2% at 93.90, but was volatile after the release.

The drop in Treasury yields weighed on the rate-sensitive financial sector, which finished at the bottom of the sector standings with a loss of 1.3%. The energy sector (-1.0%) was another notable laggard, dropping in tandem with the price of crude oil; WTI crude futures finished -1.0% at $71.58/bbl.

Market update: minutes from the July FOMC meeting (16 Aug 17)

• The minutes from the July FOMC meeting showed increasing concern among several policymakers about softer than expected inflation readings. Despite the concern about slowing inflation, most Fed officials remain in favor of announcing a balance sheet move at the upcoming policy meeting. The FOMC will kick off its next two-day meeting on September 19.

Market update: Federal Reserve hikes short-term rates by 0.25% (15 March 2017)

• The Federal Reserve followed through on its well-telegraphed intention to raise interest rates on Wednesday, hiking short-term rates by 0.25%, or 25 basis points. The new target for the fed funds rate is 0.75% to 1%.
• The policy statement cited the strengthening labor market and improving economy as reasons for the hike. But it noted the pace of expansion is just “moderate.”

More notably, the Fed still believes that three rate hikes are appropriate for 2017, relieving investors' fears that the central bank could begin setting the groundwork for a fourth hike. The major averages started the day in the green thanks to a bullish sentiment in the crude oil market and climbed to new session highs in the afternoon following the FOMC decision.

Market update: FOMC minutes from the July meeting (17 Aug 16)

A joint meeting of the Federal Open Market Committee and the Board of Governors was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., on Tuesday, July 26, and on Wednesday, July 27, 2016.

Stocks finished slightly higher today after the FOMC minutes showed a Fed divided over whether to hike interest rates.

Traders interpreted the minutes from the July 26-27 FOMC meeting to be slightly dovish. The meeting occurred before the release of a slew of U.S. economic data (Q2 GDP, July jobs report, July retail sales, PPI, CPI, industrial production, housing starts, etc.), so the fact that members generally wanted to see more data before hiking rates again is less relevant than it otherwise might be. New York Fed President William Dudley (FOMC voter) will give a press conference on Thursday morning and Fed Chair Yellen speaks at Jackson Hole on August 26.

Nest day, Thur 8/18/16:

SPY daily

SPY weekly

Market update: FOMC announcement of no rate hike (15 June 2016)

• Fed leaves interest rates unchanged
• Fed raised inflation expectations and lowered growth expectations.
• Fewer Federal Reserve officials expect the central bank to raise interest rates more than once this year, as policy makers gave a mixed picture of a U.S.
• "July isn't impossible."

  

Post-FOMC minutes market update : SPY (18 May 2016)

• Minutes from the Federal Reserve's last policy meeting indicated that a rate hike in June cannot be ruled out if the upcoming economic data is favorable. 
• The minutes suggest that the Fed is far more hawkish than the market would like to think. Shortly after the minutes were released on Wednesday, equities slipped and the dollar strengthened. 

Market update: S&P 500 (27 Apr 2016)

The Federal Reserve is keeping a key interest rate unchanged against the backdrop of a global economic slump and providing no hint of when its next rate hike may occur. A statement the Fed issued after its latest policy meeting notes that the United States is enjoying solid job gains despite a slowdown in growth. The Fed says it also expects inflation to move toward its 2 percent target from persistently low levels.

3-day SPY

10-month SPY

Post-FOMC market update : SPY (March 14-16, 2016)

• 3 days: Mon - Wed (March 16)
• Fed keeps rates unchanged and cuts its rate-hike outlook. (FOMC announcement)
• S&P at year's high. Crude oil +6%.

After the FOMC announcement of no rate hike

• UP: gold, gold miners, biotech
• DOWN: dollar, Dow, S&P500

Citing “recent global economic and financial developments,” the Federal Open Market Committee voted to maintain the near-zero interest rate policy that was put in place during the throes of the economic crisis in December 2008.

In so doing, the U.S. central bank evidently was in accord with major international authorities, notably the International Monetary Fund and the World Bank, which had urged the Fed not to raise its interest rate target for fear of worsening the turmoil in emerging markets.

(click for live chart)

Inflation, however, continues to fall short of the Fed’s 2% target (which uses the personal consumption deflator, not the more familiar consumer price index). And the Fed sees the risks posed from abroad posing downside risks to prices and the economy. Here’s the key sentence from the FOMC statement:

“Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.”

Which translates to the Fed keeping rates lower for even longer than previously projected.

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the following day:

next day following Fed announcement, Fri 9/18/15

for the week:

FOMC announcement: Fed drops word ‘patient’ (18 March 15)

• FOMC announcement: Fed drops word ‘patient’ from policy statement

FOMC: Yellen hints rate hike is possible around mid-2015 (19 March 14)

Taper tantrum: The Fed altered its guidance on the likely path of interest rates, putting less weight on the unemployment rate as a signpost for when rate increases will start. The bond-buying program will be cut by a further $10 billion, to $55 billion a month.

U.S. stocks and bonds fell as the Federal Reserve's latest policy statement raised jitters about the prospect of interest rates rising sooner than some in the market have been anticipating.