US markets closed lower after Fed raises rates

22 Mar 2018 Evaluate

The US markets closed lower on Wednesday, after the Federal Reserve delivered its sixth interest-rate increase since the end of 2015 and signaled it still expects to deliver two more before the end of the year. The Federal Reserve lifted a key US interest rate, but it stuck to a script for three rate hikes in 2018 even as it gave a more upbeat forecast for the economy. In the first meeting of Fed Chairman Jerome Powell, the central bank avoided sending any overtly hawkish signal about its interest-rate policy. The Fed stuck to its December forecast of three interest-rate hikes this year, but central bankers did push up their expected rate path in 2019 and 2020, however. As widely expected, the Fed raised its benchmark federal-funds rate by a quarter percentage point to between 1.5% and 1.75%. That is the sixth quarter-point move since December 2015. The Fed now sees a total of eight quarter-point hikes in the fed-funds rate through the end of 2020. That includes three increases this year, including Wednesday’s move, three in 2019 and two in 2020. By the end of 2020 rates would end up near 3.4%. That’s above the Fed’s revised estimate of longer-run neutral federal-funds rates. The Fed ticked up its estimate of the long-run neutral interest rates to 2.9% from 2.8% in December. That is the rate that is neither boosting nor tightening economic conditions.

On the economy front, the US current-account deficit, a measure of the nation’s debt to other countries, widened 26% in the fourth quarter. The deficit widened to $128.2 billion from a revised $101.5 billion in the third quarter. The US recorded a larger deficit in goods such as oil and a smaller surplus in primary income. The current account reveals if a country is a net lender or debtor. The current account deficit was 2.6% of GDP in the fourth quarter. That’s up from 2.1% in the third quarter and well below a peak of 6.3% in 2005. Separately, existing-home sales ran at a seasonally adjusted annual pace of 5.54 million in February. Sales of previously-owned homes snapped a two-month losing streak, jumping 3.0% from January. They were 1.1% higher than in February of 2017, and the rate was higher than 2017’s full year total of 5.51 million, a sign that “housing demand remains solid. The supply of homes for sale was at the lowest level for any February on record. At February’s sales pace, it would take 3.4 months to exhaust available inventory, about half the amount of time considered a marker of a healthy market. Supply was 8.1% lower than a year ago, and homes spent an average of 37 days on the market.

The Dow Jones Industrial Average lost 44.96 points or 0.18 percent to 24,682.31, the Nasdaq dropped 19.02 points or 0.26 percent to 7,345.29, while the S&P 500 was down by 5.01 points or 0.18 percent to 2,711.93.

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