US: Stocks retreat as Federal Reserve lifts interest rates

[NEW YORK] Wall Street stocks dropped on Wednesday and the dollar rose against most major currencies after the Federal Reserve increased interest rates and signaled it expects to keep lifting rates gradually.

The Fed, as expected, boosted the lending rate to 2.0 per cent to 2.25 per cent, saying the labor market has continued to strengthen and economic activity has been rising at a strong rate."

US stocks were in positive territory most of the day, including during Mr Powell's press conference. But the market tumbled into the red in the final minutes following Mr Powell's appearance, a sudden change in direction that is not unusual on the day of Fed decisions.

Earlier, European and Asian markets rose.

The Fed announcement "was pretty well telegraphed," said JJ Kinahan, chief market strategist at TD Ameritrade, told AFP.

On Twitter, Mr Kinahan said the Fed's shift in policy direction from one of loose money made sense in that "the market just doesn't seem to need so much support now."

The dollar rose against the euro and the pound, but retreated against the yen, with analysts saying the US central bank could have adopted a more aggressive tone on monetary policy.

Instead, the central bank continued to signal it plans "gradual" rate hikes in the future, signaling in its forecasts three increases in 2019.

"Investors were hoping for unambiguously hawkish comments from the Fed Chair and while he had a lot of good things to say, the mere mention of the possibility of rate cuts capped the rally," said BK Asset Management Kathy Lien.

"According to Powell, if inflation surprises to the upside, they could move faster but if the economy slows they would probably cut rates," Ms Lien said, adding that "the risk of easing is minimal."

But as the meeting takes place under the cloud of rising global trade tensions, Mr Powell said the central bank was hearing a "rising chorus" of concerns from businesses around the country about uncertainty and rising costs.

While the myriad trade conflicts had yet to significantly weigh on US economic data, they could lead to rising prices, he said.

Regarding adverse impacts of Fed decisions on emerging economies, Mr Powell said the US central bank makes extra effort to be transparent in communicating its moves to markets.

"We do understand, though, that when our economy is strong and we're raising rates, that puts upward pressure around the world and can affect countries, particularly countries that have external dollar borrowing," Mr Powell told reporters at a news conference.

AFP