Jerome Powell chairs his first meeting as the new Fed chief and raises US interest rates by 0.25 per cent. (Reuters: Joshua Roberts)
Wall Street ended its day lower, after the Federal Reserve lifted US interest rates and forecast at least two more hikes by the end of 2018.
Markets at 7:00am (AEDT):
- ASX SPI 200 futures -0.1pc, ASX 200 (Wednesday’s close) +0.22pc at 5,950
- AUD: 77.65 US cents, 54.87 British pence, 62.9 Euro cents, 82.27 Japanese yen, $NZ1.07
- US: Dow Jones -0.2pc at 24,682, S&P 500 -0.2pc at 2,712, Nasdaq -0.3pc at 7,345
- Europe: FTSE +0.3pc at 7,039, DAX flat at 12,309, Euro Stoxx 50 +0.5pc at 3,401
- Commodities: Brent crude +3.5pc at $US69.80/barrel, spot gold +1.7pc at $US1,333.06/ounce
What did the Fed say?
The Fed’s rate hike was widely expected, and signals growing confidence that US tax cuts and government spending will boost the economy and inflation.
In its first policy meeting under new Fed chief Jerome Powell, the US central bank indicated that inflation should finally move higher after years below its 2 per cent target and that the economy had recently gained momentum.
The Fed also slightly raised the estimated longer-term “neutral” rate — the level at which monetary policy neither boosts nor slows the economy.
This may be a sign that the current gradual rate hike cycle could go on longer than previously thought.
“The economic outlook has strengthened in recent months,” the Fed said in a statement at the end of a two-day meeting in which it lifted its benchmark overnight lending rate by 0.25 per cent to a range of 1.5 – 1.75 per cent.
Inflation “is expected to move up in coming months and stabilise” around the Fed’s target, it said.
Fed policymakers predicted rates would rise three times next year and two times in 2020, a further indication of their view that the economy is on solid footing.
They also projected US economic growth of 2.7 percent this year, which is an increase from the 2.5 per cent forecast last December.
How did Wall Street perform?
The main indexes rose immediately after the Fed decision at 5:00am (AEDT), but then fell into negative territory.
The Dow Jones index closed 0.2 per cent lower at 24,682.
As for the S&P 500 and Nasdaq, they fell by 0.2 and 0.3 per cent respectively.
Facebook shares have recovered slightly, rising 0.7 per cent to US$169.39 — but that is nowhere near enough to recoup its almost $US50 billion losses from the last couple of days.
Energy was the best performing S&P sector by far (+2.7pc), as oil prices surged for the second consecutive day to a six-week high.
This was due to an unexpected fall in US crude inventories, and persisting concerns about possible disruption to oil supply in the Middle East — particularly if the US reimposes sanctions on Iran.
Australian job figures in focus
The ASX is expected to open slightly lower, following the negative lead from US markets.
In economic news, the Bureau of Statistics will release its February labour force figures.
Economists are predicting 20,000 new jobs to have been created, but the unemployment rate to be stuck at 5.5 per cent.
The Australian dollar has risen sharply to 77.7 US cents (after falling to 76.8 US cents yesterday).
This was because the greenback fell to a one-week low after the Fed announced its rate hike.