Fed Signals the End of Rate Increase: Dollar Falls Toward 4-Month Low while Stocks & Bitcoin Sees Green
The chances of rate hikes this year seems to be waning as Federal Reserve Chairman Jerome Powell in the first conference of 2019 has signalled that they are done raising interest rates, for a while.
The Fed said economic growth remained “solid” and the central bank is expected the growth to continue.
“The case for raising rates has weakened somewhat,” said Mr. Powell.
Also, the balance sheet issue has been addressed by the officials. The Fed’s balance sheet consists of Treasuries and mortgage-backed securities. At $4.5 trillion the balance sheet reached its peak after being less than $1 trillion before the stimulus program began.
The Federal Open Market Committee (FOMC) that decides the rate policy of Fed said in its statement,
“In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.”
“The language and the markers they put down all point to a very elevated probability that the December hike was the last hike in the cycle,” said Ed Al-Hussainy, a senior interest-rate strategist at Columbia Threadneedle.
US Stocks Surge, Bitcoin & Altcoins see Green while Greenback Takes a Hit
The market watchers are surprised by this and don't expect any relief this year as Omair Sharif, an economist at Societe Generale, wrote,
“I am recovering from monetary-policy whiplash. The bar for hiking rates even once in 2019 is extremely high.”
After the Federal Reserve’s dovish turn, US stocks surged and the dollar tumbled. The S&P 500 Index jumped to its eight-week high, the Nasdaq 100 Index added over 2.4 percent and the Dow Jones Industrial Average rose 400 points.
Meanwhile, the dollar weakened to a four-month low. The Bloomberg Dollar Spot Index fell 0.4 percent while euro gained 0.4 percent, Japanese yen rose 0.4 percent, and British pound rose 0.3 percent.
Crypto market also started seeing greens as Bitcoin is in green by 0.16 percent at $3,468. Altcoins also registered slight gains in the past 24-hours.
Yields on shorter-term Treasury securities that are heavily influenced by the Fed policy also declined. With the near-term interest rates off the table, investors seem to take a step back.
Brett Ryan, a US economist at Deutsche Bank AG said the Policy makers have taken a “step in a very dovish direction,” and “They’re going to be on hold for a little bit.”
Now, all the eyes are on Vice Premier Liu He, Chinese President Xi Jinping’s top economic aide who will be meeting with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin to resolve the ongoing trade dispute.