US stocks erased gains, the dollar rebounded from its lows of the day as the Federal Reserve signaled additional rate hikes remain warranted, striking a slightly less dovish tone than some investors had anticipated.
The S&P 500 was just slightly lower after wiping out an advance that reached 1% after the central bank raised interest rates for the fourth time this year. Officials now project two further hikes in 2019, down from three. Markets had been priced for just one hike next year.
The two-year Treasury yield rose to 2.66%, while longer-dated bond rates slipped after the Fed lowered its forecast for economic growth. Bloomberg’s dollar index was down 0.1% after falling as much as 0.4%.
By trimming the number of rate hikes they foresee in 2019 policy makers signaled they may soon pause their monetary tightening campaign. Chairman Jerome Powell and his colleagues said “economic activity has been rising at a strong rate’’ in a statement Wednesday following a two-day meeting in Washington.
“This hike is a vote of confidence in our economy for 2018, but essentially that’s a wrap,” said Mike Loewengart, vice president of investment strategy for E*Trade Financial Corp. “We’re now in some uncharted territory as 2019 comes into focus.”
Amid the recent volatility in stocks and other risky assets, many investors were looking to Powell to attempt to limit the fallout from an interest rate increase by delivering a less hawkish message than in the past. President Donald Trump had stepped up pressure on the central bank to avoid more tightening in the runup to today’s announcement.
Beyond the Fed, trade and politics remain the dominant themes. The US Senate will vote as soon as Wednesday on a bipartisan spending bill to avoid a partial federal shutdown and keep the government funded until February 8. Meanwhile, Treasury Secretary Steven Mnuchin said America and China are planning to hold meetings in January to negotiate a broader trade truce.
Elsewhere, the yield on benchmark Japanese notes slipped to within striking distance of 0% before a rapid turnaround as the surge in demand triggered a margin call. Asian shares were mixed following a disappointing market debut for SoftBank Group’s Japanese telecom business. The Stoxx Europe 600 Index snapped a four-day losing streak. Italian debt surged after the European Commission decided against launching a disciplinary procedure over the country’s budget.
This story has been published from a wire agency feed without modifications to the text.