A decadelong rally on Wall Street looks like it's ending

Federal Reserve raises interest rates, signals fewer hikes ahead

Jerome Powell had a message for both Wall Street and Washington: The Federal Reserve won't be pushed around. Fed officials also lowered its rate hike projection for next year from three to two.

At a news conference after the Fed's announcement, Powell said Trump's tweets and statements would have no bearing on the central bank's policymaking.

"Heading as we are to potentially the worst monthly December performance for USA equity markets since the 1930s, it would be easy to think that we could well be heading for further heavy declines", said Michael Hewson, chief market analyst at CMC Markets.

The decision Wednesday to hike rates was unanimous with all 10 Fed leaders voting in favor of the increase. But Powell cautioned that those predictions were far from ironclad.

His words, delivered in the chairman's characteristic calm baritone, were meant to be reassuring. Namely, when stocks enter what are known as bear markets. The big insurers' stocks may add to the banks woes, after the damage caused by last night's major Sydney thunderstorm led the Insurance Council of Australia to declare "an insurance catastrophe".

The Dow lost 464 points, or 2 percent, to close at 22,860, the first time the blue-chip index has closed below 23,000 points since October of 2017.

Australian shares suffered their biggest weekly loss in over a month on Friday, as investors stampeded out of riskier asset markets on heightened anxiety over faltering global growth prospects. It also signaled there'll be two more hikes next year. Wednesday's was the Fed's ninth hike since it began gradually tightening credit three years ago. "With corporate borrowing and spending still high, and the Fed continuing to reduce its balance sheet, I'd expect volatility to remain if this tightening continues", he said. But he stressed that rates would be the main instrument of Fed policy. "Instead, it chose to continue trying to win the game", economist Joel Naroff said.

Powell acknowledged that "some crosscurrents have emerged" in the economy but said recent developments have not "fundamentally altered the outlook". That's the point at which its key rate is thought to neither stimulate nor hinder growth.

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For now, most US economic barometers are still showing strength.

He also said two rate hikes by the Fed would be "two too many".

Had the Fed announced a pause in rate hikes, it might have panicked investors about a sinking economy. It leaned heavily on managing risks around topline macroeconomic data like the unemployment rate, not how stocks are faring in a $20 trillion economy that would need more than the lost paper wealth of a few bad trading days to knock it off course.

Essentially, whether buyers can sustain the rally in gold will be data dependent.

Investors have become increasingly anxious about the economic outlook. But a mix of factors - a global slowdown, a U.S. From China to Europe, major economies are weakening. Many economists are predicting that the United States could sink into a recession by 2020.

The central bank raised interest rates for the fourth time this year and signalled "some further gradual" hikes. But a shift toward "data dependence" means more guessing from investors going forward about just how fast the Fed plans to raise rates to keep the U.S. economy from wobbling.

Much of the rate reaction to the Fed statement may have been driven by safety buying as stocks fell, and by investors buying bonds for year-end portfolio rebalancing. "Indeed, the downward revision to growth forecasts and the "dots" for 2019 reflects a committee that sees greater uncertainty around the path for policy next year". Instead, he has decided, beginning in 2019, to hold news conferences after each of the Fed's eight meetings each year, rather than only quarterly. On the other hand, managed well, the news conferences could provide a valuable tool for Powell to shape how investors interpret the Fed's policies.

Markets were further spooked when US President Donald Trump refused to sign legislation to fund the US government unless he got money for a border wall, thus risking a partial federal shutdown on Saturday. "Powell has a chance to modulate his comments to basically try to correct any market misperception about what the Fed was trying to say".

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