US markets closed lower after FOMC meet outcome

15 Dec 2016 Evaluate

The US markets closed lower on Wednesday, as investors grappled with the prospect of a faster pace of rate increases in 2017 than had been previously forecast. The Federal Reserve raised its key short-term rate as had been universally expected, but it also forecast three rate increases in 2017, compared with the two that had been anticipated at its previous meeting in September. While the revised outlook could be taken as a positive sign - the Fed has said it would only raise rates when it deems the economy strong enough to withstand such a move - it added an element of uncertainty to the market. At the same time, the Fed’s so-called ‘dot plot’ showed the central bank has now penciled in three rate hikes in 2017 instead of two under its prior forecast. In raising rates, the Fed moved its key short-term rate to a range of 0.5%-0.75% from 0.25% to 0.5%. The Fed decision marks the central bank’s first increase in rates since last December, which itself was the first in about a decade. Although Chairwoman Janet Yellen called the shift very tiny, she acknowledged some Fed officials took President-elect Trump’s economic plan into account when making their forecast. Still, she suggested that higher inflation and a lower unemployment rate than the Fed had expected were bigger factors in the change. What’s more, she stressed the Fed would take a wait-and-see approach for now since the outlines of Trump’s plans are hazy. Fed officials did not give many hints in their latest forecast for the economy. They still expect GDP growth to average 2% over the next three years. And they predict the unemployment rate will stay close to the 4.6% rate seen in November. Yellen implied the Fed doesn’t expect the labor market to show much more improvement, however, and that more stimulus from Washington probably isn’t necessary.

On the economy front, sales at US retailers barely rose in November, but the weakness stemmed mostly from the biggest drop in sales at auto dealers in eight months. Retail sales increased a seasonally adjusted 0.1% in November. Sales growth in October was also lowered a bit, revised government figures show. Over 12 months, retail sales grew 3.8%. Industrial production saw the third decline in the past four months in November, suggesting the sector is struggling again after strong gains over the summer. The Federal Reserve said that industrial production fell 0.4% in November, the biggest percentage fall since March. Compared to the same period of 2015, production is down 0.6%.

The Dow Jones Industrial Average lost 118.68 points or 0.60 percent to 19,792.53, Nasdaq was down 27.16 points or 0.50 percent to 5,436.67, while S&P 500 dropped 18.44 points or 0.81 percent to 2,253.28.

The Indian ADRs closed in red; HDFC Bank was down 1.31%, Dr. Reddy’s Lab was down 0.56%, Tata Motors was down by 0.52%, Wipro was down 0.18% and Infosys was down by 0.13%.

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