As was widely predicted in the world of finance, the United States Federal Reserve hiked the interest rate on Wednesday, marking the fourth and final increase for 2018. While stock markets responded poorly to the news, there is at least one positive to be taken from the announcement: The Fed will slow its pace for next year.
Federal Reserve Expects Slowed Growth Next Year
Even though the stock markets dropped after the Fed’s announcement, there is some silver lining in the form of news that the Fed will slow its rate hikes for 2019.
At yesterday’s press conference, Chairman Jerome Powell said that “despite this robust economic backdrop and our expectation for healthy growth, we have seen developments that may signal some softening.” Powell said that most officials within the Fed had lowered their 2019 growth forecasts.
Most importantly, Powell said that members of the Fed “now think it is more likely the economy will grow in a way that calls for two rate increases next year.”
It was initially believed that there would be at least three rate increases in 2019, and one more before 2021.
Why Are Investors Unhappy About Rate Hikes?
Rate hikes guide the economy and control inflation. However, the United States doesn’t have an inflation problem today, and the overall economy is incredibly healthy. Unemployment is at a record low, and wages are increasing at a healthy rate. GDP continues to grow, indicating that now is actually one of the strongest growth periods in the nation’s history.
While investors can understand that low rates won’t last forever, a growing number of private and institutional investors believe that rates are now having a negative impact on the market. Considering recent volatility surrounding rate hikes, it’s not hard to see why.
How Markets Responded to Interest Rate
Following the news, the NASDAQ Composite closed at -2.17%, the Dow Jones Industrial Average at -1.49%, and the S&P 500 at -1.54%. This December has been one of the most volatile on record.
As is always true in the stock market, tomorrow is a new day, and market sentiment can quite literally turn on a dime. Investors can still find healthy stocks and there are high dividend options out there that may protect weary portfolios.
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