Fed announces fourth rate hike of 2018, markets react

Posted by David Diggins on Dec 20, 2018 12:21:11 PM

On Monday, President Trump criticized the Fed for even considering raising rates, yet on Wednesday the Federal Open Market Committee announced its decision to raise the Fed Funds rate ¼ of a percent from 2.25% to 2.5% -- the fourth such increase in 2018.

The markets had widely expected the hikes. Even so, equity and bond markets tumbled with the news.

The 10-year Treasury dropped 5.1 basis points settling at 2.758%, hitting a nine-month low, and the 30-year plummeted 8.1 basis points settling below 3% at 2.989%, a four-month low. January delivery of WTI Crude recovered on Wednesday gaining 3.76%, closing just below $48 a barrel. The Dow Jones saw a 1.28% decline, while the S&P 500 saw a drop of -1.35% and the Nasdaq dipped -2.01% near market close. 

ADI proprietary index data showed a net yield increment for high-yield versus high-grade bonds. High-grade edged out high-yield.

The Fed decision made mid-December 2018 new issuance all the more unlikely given continued turmoil in the global financial markets the and low price of crude oil.

Edward Yardeni, President of Yardeni Research, in a public post on LinkedIn proclaimed that Fed Chairman Jerome Powell “is no Santa”.

“I still don’t expect a recession in 2019, but slower economic growth and possibly even lower inflation should dissuade the Fed from hiking rates in 2019,” said Yardeni.

Powell stressed the economy is in good standing. “2018 has been the strongest year since the financial crisis,” he said.

With its announcement, the Fed predicted 2 rate increases for 2019, down from the previously speculated three increases.

Topics: High Yield, Analytics, bonds, junk bonds, market analytics, New Issues, Finance, Equity, Fixed Income, News

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