On Wednesday night, the Federal Reserve did as expected and hiked interest rates by 25 basis points to 2.5%. The topic of greater interest was always going to be the accompanying press conference and whether there were any hints on future policy. Fed Chair Jerome Powell suggested that there would be two further hikes in 2019 and although he said this was not set in stone, it was enough to send shockwaves through the stock markets soon after.
The Dow Jones industrial average plunged to its lowest level of 2018 following the decision, with Wall Street concerned that the central bank is making a serious mistake in planning further rate rises next year. The worry is that repeated tightening of monetary policy will put the brakes on economic growth, as opposed to it naturally slowing. Yesterday, Japan’s stock market dropped some 20% from its recent peak, while almost every share on the blue-chip FTSE 100 fell. The Footsie hit its weakest level since September 2016 and the FTSE 250 index did not fare much better.
European stocks slid too. Several economists have spoken out at the Fed’s actions, saying that policy makers appear to have ignored recent signs of weakness in the American economy. It is true that the US economy is in a strong position at the moment, but there has been some recent disappointment in the job market and consumer confidence has not been that great of late. Of course, if the Fed sees evidence that the US economy is stalling then it will not necessarily hike rates next year, but traders are clearly still spooked.
Speaking of interest rates, the Bank of England voted unanimously to leave UK rates unchanged at 0.75%. Policy makers went on to issue a warning that Brexit uncertainties have ‘intensified considerably’ since November. In the meeting minutes, the MPC stated that the pound has fallen, government bonds are under pressure and stocks have declined. Brexit uncertainty is also making it more difficult – and expensive – for UK companies to borrow money.
Given that MPs are all embarking on a two-week Christmas break, despite there being rather a lot to do regarding the UK’s Brexit plans, let’s move on from this doom and gloom and all enjoy the festive period. If you’re breaking up for Christmas today, then have a very Merry Christmas and a Happy New Year! If not, then we obviously wish you a very Merry Christmas and a Happy New Year too, but we’ll save those salutations for Christmas Eve, when we will be open for business as usual.
And, if you’re thinking of making a purchase over the next few months, get prepared now by discussing a forward contract to fix in the same exchange rate for up to twelve months, no matter what happens to the markets. Speak to your Personal Trader on 020 7898 0541 to find out more.
