The Federal Reserve Board just announced that it was raising interest rates for a fourth time in 2018, a probability that some 70%, or more, of pundits had speculated would be the case at the outcome of the latest FOMC meeting. The latest Committee meeting adjourned at 2:00 (EST) this afternoon.
The stock market, up almost 400 points on the Dow Jones Industrial Average just before the announcement, immediately sold off sharply on the news--not because the central bank increased borrowing costs, but because it speculated that there would be two additional rate hikes in 2019.
True, that estimate was down from the earlier forecast of three increases. But some Fed watchers had speculated that there would be no further rise in rates next year. We were not among them. Also, the language in the statement accompanying the Fed move was not entirely dovish, as the bank continued to include a statement that more rate adjustments would be appropriate.
Specifically, the Fed indicated that “The Committee judges that some further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the intermediate term.”
As noted, the previous Fed statements had pointed to three more rate hikes in 2019 and perhaps one in 2020. But recent choppy economic activity has seemingly made the central bank more wary. However, for some economic bulls, the Fed apparently not cautious enough, for after the Dow's earlier upward spike, that index has lost much of its gain with the NASDAQ going negative.
- Harvey S. Katz, CFA
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
