Mnuchin: Market reaction to Fed rate hike 'completely overblown'


Traders are fleeing to safety, according to reports, but with the looming crisis in Britain, the trade war between the United States and China and other problems in the Eurozone, there might not be anywhere to hide.

The Australian dollar slipped from last night's highs to trade at US71.10¢, up from US70.9¢ yesterday.

In energy markets, benchmark USA crude rebounded 48 cents to $46.37 per barrel in electronic trading on the New York Mercantile Exchange.

The Dow Jones Industrial Average closed at 23,323.66 on Wednesday, the lowest at any point in in 2018, and 12.1 percent lower than October 3 when it closed at an all-time high of 26,951.81. By the close of trading, the Dow Jones Industrial Average had lost 352 points - 1.5 percent.

Fed funds futures are now pricing in only about a 50 percent chance of one rate hike.

Members also said they expect inflation to hover around 1.9% next year, compared to a 2% forecast in September.

Economists appear unified in the view that whatever the Fed does, it won't be influenced by the attacks Trump has made on the central bank and on Powell personally since the stock market began tumbling this fall. Powell said he would continue to reduce the balance sheet.

Wednesday's decision marked the Fed's fourth rate hike this year and the ninth such move since late 2015, as the central bank moves forward on the path of monetary policy normalization. Banks wait somewhat longer to offer savers a higher interest rate on their accounts, with the most generous banks now offering 2.05 percent APY for a savings account, and slightly more for a CD. Increases are passed on to other borrowers , mostly consumers, through higher rates on things like credit-card debt.

A weaker economy will likely force the Fed to take a pause in its rate hikes, which would drive Treasury yields lower.

Powell acknowledged that "some crosscurrents have emerged" in the economy but said recent developments have not "fundamentally altered the outlook".

"General consensus is that they may slow down interest rate hikes".

Investors had hoped for a less aggressive approach amid concern that global growth is slowing, but Powell played down the impact of recent market turmoil on the U.S. economy. "In turn, that supports the USA dollar, and that is negative news for emerging markets in general". Despite an outlook that is "roughly balanced, " officials pointed at potential threats from a softening world economy. Japanese authorities said that their export growth experienced a crawl in November, and the slowdown has continued. FedEx's shares, for example, plummeted over 12%, effectively pushing its stock down.

On a global level, a staggering US$15 trillion has been wiped off the value of equity markets since late January, according to Bloomberg, with China accounting for 13 per cent of the losses. A consensus is already out - the world's economies will be seeing a slowdown.

Historically, an inversion between short yields, such as three-month and two-year yields, and 10-year yields has been seen as a fairly reliable indicator of a recession down the road. The wording change reflects a central bank that now intends to respond in real time to the course the economy takes rather than follow a rate-hike road map as it has the past couple of years. "He had to say that the economic picture is not as good as three months ago, while also saying that the pillars of the economy remain intact". Governments would have their hands tied in such a scenario.

President Donald Trump sent a tweet Tuesday morning, hoping the Fed would go by feel of the market and "don't just go by meaningless numbers". So is Europe, where Italy is on the verge of recession and Britain is struggling to negotiate an exit from the European Union.