Sometimes, what you expect is still a surprise. The Federal reserve announced at 2:00 PM New York time that they would not be lowering interest rates this session. Therefore, the rate will remain between 2.25 and 2.50 percent.
This was expected, as we discussed earlier in the week; however, markets are still reacting strongly to the news.
While the headline will remain the unchanged interest rates, there are other significant warning signals buried in the report.
The Fed maintained its underlying belief that economic growth was likely. Still, it stressed that “uncertainties about this outlook have increased.”
“In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion,” the report said.
The phrase “act as appropriate” is critical there because it is the clearest indication yet that the Fed is willing to consider lowering interest rates. But they haven’t gone down that road so far.
President Trump will not be quiet about this revelation. Following complaints about the European Central Bank’s apparent willingness to tolerate a slowing economy, these updates will hardly lower his temperature. “I want to be given a level playing field. And so far, I haven’t been,” he said about the ECB’s decision.
Meanwhile, his political opponents are anxious to make hay out of his frustration. “The last thing we need is politics involved in setting interest rates,” Speaker of the House Nancy Pelosi said Wednesday. “The last thing we need is a president threatening a chairman of the Fed about whether he is raising or lowering rates in tune with the president’s politics. This is so very, very wrong.”
Wall Street Responds
Even though most Wall Street analysts were expecting no change, the markets are surprisingly responding well to the news. All three of the Dow Jones, the S&P 500, and the Nasdaq indicators saw a significant spike at 2:00 PM, and have remained elevated for a while.
Long term futures are less promising though. There’s been a significant almost across the board in bond notes, indicating that the markets are projecting an economic dip longterm.
That is no surprise, as many analysts are bearish about the future. But the overall timbre of the market is one of chaos and uncertainty. Chairman Powell’s press conference at 2:30 may provide further clarity for traders, or it may plunge them into deeper uncertainty. Either way, continue to watch the indicators for how they react the rest of the day, particularly how they close.