Stocks end mixed after Fed holds off on rate hike
NEW YORK -- Stocks fell on Wall Street Thursday after the Federal Reserve decided to hold off on raising interest rates but expressed some concern about recent tumult in markets.
The closely watched Fed meeting, in which the Fed opted not to hike rates for the first time in nearly a decade, prolongs the guessing game as to when the U.S. central bank will finally pull the trigger on rates, which are now pegged close to 0%.
Fed policymakers decided by a 9 to 1 vote to keep its benchmark interest rate unchanged, where it has been since late 2008. While the Fed boosted its 2015 economic growth projections and downgraded its unemployment forecast, the Fed was still uncomfortable inflation expectations, which it reduced for both this year and 2016.
Still, Fed chair Janet Yellen still said the Fed is on track to hike rates at some point in 2015 -- either at the Fed meeting in October or December -- if the U.S. economy and job market continue to improve and inflation moves back closer to the Fed's 2% mandate.
The Dow Jones industrial average ended down 0.4%, off 65 points, to 16,674.74, after climbing as much as 190 points and tumbling as low as 80 points in the two hours after the Fed decision was announced. The Standard & Poor's 500 stock index declined 0.3% to 1990 and the Nasdaq composite eked out a 0.1% gain.
The Fed move also sent bond prices soaring, which pushed yields lower. The yield on the 10-year Treasury note fell to 2.20% from 2.30% Wednesday.
In its decision to hold rates steady, the Fed’s statement acknowledged that recent market turbulence and international developments was among the reasons to hold off on rate hikes for the time being.
In addition to keeping an eye on inflation, which the Fed wants to move towards its 2% mandate, and further improvement in the labor market, the Fed also said it will monitor “readings on financial and international developments.”
"This appears to be a China wobble," Paul Ashworth, chief U.S. economist told clients.
Dan Farley, regional investment strategist US Bank’s Private Client Reserve says the Fed decision now also partly hinges on market stability. “Clearly they are keeping an eye on what is going on in financial markets,” Farley told Paste BN.
The Fed’s decision to hold off on a rate hike, puts the market back in the will they or won’t they mode, as the Fed meets again in October and December, says Patrick Maldari, senior fixed income investment specialist at Aberdeen Asset Management.
“We will be back to the same game,” Maldari said, referring to the Wall Street parlor game of trying to predict exactly when the Fed will finally raise rates.
The growing consensus on Wall Street had been that the Fed would delay a rate hike until its October or December meeting, as the central bank assesses the fallout from the recent global market turbulence and slowing growth in China, the world's second-biggest economy.
The futures market was only pricing in a 25% chance of the Fed hiking rates today.
The last time the Fed raised rates was June 2006. The Fed has pegged short-term rates at near 0% since late 2008.
Traders in Europe had been playing it safe, with the broad Stoxx 600 index down 0.2%. Shares of the CAC 40 in Paris were up 0.2% and the German DAX edged up 0.1%.
In Asia, shares traded mix, with Japan's Nikkei 225 rising 1.4%, Hong Kong's Hang Seng index falling 0.5% and stocks in mainland China's Shanghai composite index dipping 2.1%.
