Markets tumble after Fed hikes the interest rate

Dow finished down 351 (an 800 drop after today's big announcement), decliners over advancers 5-2 & NAZ sank 147.  The MLP index gained 2+ to the 231s & the REIT index added 2+ to the 341s.  Junk bond funds declined in price & Treasuries went higher.  Oil rose 1+ to the 47s & gold gave back 7 to 1245.

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The Federal; Reserve raised short-term interest rate for the 4th time this year, but signaled a slower pace of gradual rate hikes next year, expecting to hit neutral by the end of 2019.  As expected, policymakers at the central bank said they voted to hike the benchmark federal funds rate by a qtr percentage point, setting a range of 2.25-2.5%.  Investors were closely watching the Fed’s announcement after Chair Jerome Powell struck an optimistic note about the state of the US economy in Nov, suggesting that interest rates are nearing neutral.  The policymakers anticipate interest rates will hit neutral by the end of 2019, but suggested there would be one more hike in 2020 before holding steady.  Although still low by historical standards, this latest hike put interest rates at the highest level in nearly a decade.  It marks the 9th time the Fed has raised interest rates since 2015.  Higher rates can impact consumers by increasing borrowing costs, which have already climbed this year.  Auto loan rates are at a 9-year high & 30-year-fixed mortgage rates climbed to their highest level in 7 years.  The Federal Open Market Committee cooled their view of the US economy heading into next year.  Although it now expects GDP, or economic growth, to hit 3% this year, it projected that would fall to 2.3% in 2019.  Pres Trump has repeatedly lambasted Powell & the Fed for what he says is raising interest rates too frequently.  Although interest rates can stave off inflation & prevent the economy from overheating, they can also slow it.

Despite Trump's complaints, Fed hikes interest rates again

Federal Reserve chairman Jerome Powell denied that the central bank's decision-making has been influenced by any political pressure.  “Political considerations play no role whatsoever in our discussions or decisions about monetary policy. We’re always going to be focused on the mission that Congress has given us,” Powell said.  “We have the tools to carry it about, we have the independence that we think is essential to be able to do our jobs in a non-political way. We at the Fed are absolutely committed to that mission and nothing will deter us from doing what we think is the right thing to do.”  Pres Trump has lambasted the central bank multiple times over the past year.  He is openly critical of the Fed, going so far as to say the Fed has “gone crazy” with monetary policy.  That has caused concern among some, as Trump's criticism of the Fed is largely without precedent in US history.  Trump said earlier this year that he was “not thrilled” about the rate hikes.  Those hikes were enacted by Powell, a chairman who Trump appointed.  The Fed has hiked 4 times this year.  The Fed raised its benchmark interest rate by a qtr-point today, despite Trump's tweets against more rate hikes.

Fed’s Powell says ‘political considerations’ have played no role in central bank’s decision-making

The Senate will introduce a stopgap measure later today to fund the gov, potentially avoiding a partial shutdown, Majority Leader Mitch McConnell said.  The pres has been in a stand-off with Dems over funding for a wall along the country's southern border, which has prohibited lawmakers from reaching an agreement on a spending bill.  Congress needs to agree on the measure by Fri at midnight, or parts of the gov will shut down.  On Feb 8, when the measure runs out, Dems will have control of the House of Representatives, which could lead to an even more challenging battle for Trump over border wall funding.  While Trump suggested last week that he would be “proud” to shut down the gov over border security, he seemed to back away from that stance this week. Yesterday, he suggested the trade agreement reached with Canada & Mexico (USMCA) would lead to an indirect payment from Mexico.  CRs, while useful in keeping Capitol Hill running, can have negative consequences on federal agencies, which are unable to plan for the coming year when their budgets have not been finalized.  Spending on some agencies has been agreed upon by lawmakers.  The disagreement primarily involves the Dept of Homeland Security – where funding for the border wall would be allocated.  Other agencies funded thru the CR include the Dept of Agriculture, the Dept of Commerce & the Dept of Justice.

Senate avoids shutdown with short-term spending bill

China & the US traded barbs again at the World Trade Organization, with the US ambassador accusing China of technology theft while Beijing's envoy retorted that the US was "finger-pointing."  The standoff comes as many countries lined up to criticize & question Trump administration policies in a WTO trade policy review of the US, a regular process that WTO member states undergo.  Today marked the 2nd & final closed-door session on the US after a first one on Mon.  US Ambassador Dennis Shea sought to re-direct attention on China, saying it would subsidize its industries to squeeze foreign producers & dump products at cheap prices abroad.  Hu Yingzhi, a deputy director-general of the Chinese Commerce Ministry's dept of WTO affairs, said China had "high expectations on the largest economy in the world to behave in the common interests of the entire membership of the WTO."  But Hu appeared to bristle against US allegations.  "China absolutely refuses to be the scapegoat and excuse for unilateralism and protectionism," Hu said.  "This is the review of the United States, not China."

US, China face off again at World Trade Organization

Powell said the Fed has arrived at the lower end of neutral rate range & lowered the rate hike projection for 2019 from 3 to 2.  However his words did not calm investor nerves.  The sound of 2 rake hikes next year did not sound encouraging.  Meanwhile the the trade dispute with China, stuck in the mud, added to investor anxiety.  Now the Dow has to be concerned about holding above 23K after reaching 24K just 2 hours before today's close!  The Dow has plunged 3500 from its Oct 3 record high.  Tough times lie ahead for investors.

Dow Jones Industrials