Fed Lowers 2019 Interest Rate Hike Forecast from Three to Two
U.S. Rate Hikes to Continue at Slower Pace in Down Market
Despite down market, the Fed signaled more 2019 interest rate hikes in January. Subsequently, stocks carried their negative trends into January.
2018 Interest Rate Hikes
On December 19, the Fed raised interest rates for the fourth and final time in 2018. While the year-end announcement was more dovish than past hikes, it did not point to a halt.
The Fed made it clear that data would drive their decision-making in 2019. Consequently, the previous 2019 projection of three rate hikes in 2019 was backed down to two.
While the Fed recognizes the downward turn in the market, the low unemployment numbers still suggest a healthy U.S. economy. And, while it’s a small sample size, the S&P has started to climb back this year, inching closer to the green.
2019 Fed Interest Rate Announcements
Although investors knew more rate hikes were coming, many were in denial moving into January. After all, CNN Business reported 2018 as “the worst for stocks in 10 years.” After a discouraging October—where the Dow drop wiped all 2018 gains—investors saw little reason for optimism as they rang in the New Year.
As expected, the Fed again rose interest rates a quarter-point on December 20. Again, investors saw their 401(K)s dive deeper into the red. Not exactly the Christmas color they were hoping to see.
By December 31, 2018, the Dow fell 5.6%, S&P fell 6.2%, and the Nasdaq was down 4%. Not only was it a bad year, it was also the only year in the past decade that the Dow and S&P fell.
Investor and Market Response
In response to the market negativity, investors hoped to hear more hints of a slow-down from the Fed last week. While the Fed acknowledged that the economy could be showing signs of a global slowdown, their announcement was not the dovish response many hoped for or expected.
In addition to hiking its benchmark interest rate another quarter-point, the Fed also reinforced its intent to continue its push for gradual increases.
The Good News
- The fed did lower its earlier 2019 interest rate hike projections from three to two. Last year, the Fed raised interest rates four times.
- In doubling-down on resolve by continuing to raise rates, the Fed shows confidence in the marketplace. It believes the markets no longer need a crutch and can make it on their own.
- Again, U.S. employment numbers remain low, providing some evidence of a stronger, more stable economy than we’ve seen in recent years.
- While Fed decisions are not up to investors to decide, many investors still expect rates to remain the same in 2019.
- Today, January 10, 2019, marks the S&P 500’s fifth day of consecutive gains and oil’s ninth consecutive day of gains.
The Bad News
“The Federal Reserve on Wednesday confirmed fears that the U.S. economy is slowing and ratcheted back its plan to raise interest rates next year. But the central bank still hiked its benchmark interest rate a quarter-point, and markets plunged out of concern that the Fed may not be adequately reacting to the risks facing the global economy.” (Source)
Read our latest ‘s article to learn how recent interest rate hikes may affect you.