US markets closed lower after Fed minutes

22 Feb 2018 Evaluate

The US markets closed lower on Wednesday, ending a tumultuous session firmly lower after minutes from the Federal Reserve’s most recent policy-setting meeting sparked a fresh wave of volatility, as bond rates clambered higher and the dollar strengthened, weighing on equities. Minutes of the January 30-31 Federal Open Market Committee meeting showed that officials saw a stronger economy than at the end of 2017 and that more rate increases were in the offing. The strengthening increased the likelihood that a gradual upward trajectory of the federal-funds rate would be appropriate. The FOMC altered its message to point to further gradual increases, emphasizing its desire to resume rates increases in 2018. Officials concluded that upside risks to economic growth had increased thanks to tax cuts, increased consumer spending and confidence and a general plethora of signs that growth was moving along at a sustained pace. Members said they have revised upward the economic projections they made at the previous meeting in December. Officials deemed that core personal consumption - excluding food and energy - likely will run notably faster in 2018. The 2017 level was mired around 1.5 percent for 2017. The Fed’s preferred inflation measure is the personal consumption expenditures index. Separately, Minneapolis Federal Reserve Bank President Neel Kashkari said that the best hope for the impact of the Trump administration’s $1.5 trillion tax overhaul on the US economy is that it boosts investment and thus productivity. But whether it will do so and deliver faster economic growth in the process is unclear.

On the economy front, existing-home sales ran at a seasonally adjusted annual pace of 5.38 million in January. Sales of previously-owned homes slid 3.2% in January, the second consecutive monthly decline. Sales were 4.8% lower than a year ago, the steepest annual decline in more than three years. The median price jumped 5.8% to $240,500. First-time buyers were responsible for just 29% of all transactions in the month, a bit lower than in recent months and still well below their long-time average of 40%. Separately, an index that tracks US manufacturers rose to a nearly 3 1/2-year high in February and a gauge for service-oriented companies hit a six-month peak, according to IHS Markit’s flash PMI. The manufacturing index rose to 55.9 from 55.5. The services barometer climbed to 55.9 from 53.3. Any number over 50 signifies expansion, and results above 55 are considered exceptional. The one drawback in the report was the cost of raw and partly finished materials rose to the highest level since 2013, perhaps a sign of rising inflation.

The Dow Jones Industrial Average lost 166.97 points or 0.67 percent to 24,797.78, Nasdaq was down by 16.08 points or 0.22 percent to 7,218.23, and S&P 500 dropped 14.93 points or 0.55 percent to 2,701.33.

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