Wall Street indexes declined on Wednesday after the Federal Reserve’s decision to raise interest rates for the fourth time in 2018. The central bank has lowered its expectations for the number of increases that are coming next year, though not as much as some market participants expected.
The blue-chip index Dow Jones Industrial Average erased 351.98 points from its value, closing the session at its lowest value this year. The broad benchmark S&P 500 declined by 1.7%, while the Nasdaq benchmark dropped by 2.1%.
Dow Jones and S&P 500, which are in the correction area, are marking their worst performances in December since the Great Depression in 1931, dropping by more than 8% and 9% respectively this month. The S&P 500 moved to red territory in 2018 by 6.3%.
The Federal Reserve has decided to raise interest rates by a quarter percentage point to the range of 2.25-2.50%, with central bankers arguing with the tightened labour market and healthy economic growth. The Fed believes that the risks to the economy are fairly balanced by committing itself to continue to monitor the development of the global economy and to assess the economic outlook.
The yields on 10-year government bonds reached 2.798%, which is the lowest since May 30. The yield on 30-year bonds fell below 3%.
Corporate stocks performance
Companies in a number of sectors reported a decline in their stock prices following the Fed’s decision. The shares of Target, Amazon, Newell Brands and Nordstrom fell by more than 3%.
The banks, including Morgan Stanley, Citigroup and Wells Fargo, lost more than 1.5% of their market capitalization.
The shares of Boeing fell by 2.9%, 3M wiped out 2.3%, and United Steel dropped by 7%.
FedEx stocks fell by more than 11% after the supplier downgraded its forecast for 2019, mainly because of its international business.
Facebook reported a decline in the price of its stocks on Wednesday by more than 6% after the information showed that the social network has allowed several big technology companies to have greater access to consumer information.
Fed raised interest rates and signaled two hikes in 2019
The Federal Reserve has decided to raise interest rates by a quarter of a percentage point to the range of 2.25-2.50%, with central bankers arguing with the tight labour market and healthy economic growth.
Incoming information after the Federal Reserve meeting in November shows that the labour market continues to grow and economic activity is steadily rising. At the same time, the unemployment rate remained low, while business investment growth slowed down.
The overall inflation on the year-on-year basis, as well as core inflation, remains close to 2%. The indicators of long-term inflation expectations are slightly changed.
The Federal Reserve considers that the risks to the economy are relatively balanced by committing itself to continue to monitor the development of the global economy and to assess the economic outlook.
However, the Fed signals for two interest hikes next year, down from the previous expectations.
At their previous meeting, the Federal Reserve Bankers confirmed their beliefs that the gradual rise in interest rates is the best solution for preserving the stability of the economy.
The US central bankers have lately paid attention to the risks of slowing growth in Europe as well as to the interest-intensive sectors of the US economy. The Fed signalled the markets for a slowdown in the rate of interest rate growth, saying that interest rates are now close to their neutral levels.
The Federal Reserve’s decision to raise interest rates comes despite the warnings from the US President Donald Trump, Fed “not to make another mistake”. The central bank’s statement even indicates that the continued rise in interest rates would be appropriate given the economic development.
At its last session in 2018, the US central bank raised its benchmark interest rate to its highest level since 2008.
However, the Fed lowered its projections for economic growth and inflation in the US in 2018 and 2019. The new expectations are for economic growth of 3% in this and 2.3% in 2019, with respectively 3.1 and 2.5% during the September meeting.
The Federal Reserve predicts that inflation in 2018 and 2019 will be 1.9%. By comparison, the previous estimates showed 2.1% and 2% respectively for this and next year.