Fed Raises Interest Rate but Offers Hope for 2019

December 20, 2018
1026 Views

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.

You may be interested

Job Hiring is Picking Up as Employers and Consumers Gain Confidence
Economy
548 views
Economy
548 views

Job Hiring is Picking Up as Employers and Consumers Gain Confidence

Lamont J - March 29, 2021

The recent government stimulus for small and medium-sized businesses, personal stimulus checks, and declining Coronavirus cases, are all great news…

Fed Could Maintain 0% Interest Rate Until 2024
Economy
489 views
Economy
489 views

Fed Could Maintain 0% Interest Rate Until 2024

Adam R - March 26, 2021

The Federal Reserve is holding its target interest rate in a range of 0.00% - 0.25%, even while the economy…

Supply Constraints Could Slow the Home Market
Economy
555 views
Economy
555 views

Supply Constraints Could Slow the Home Market

Becky H - March 25, 2021

Low inventory has been a constant in the home market for more than a year. The supply of existing and…