Home Business News FTSE hits 28-month low after Fed raises rates again

FTSE hits 28-month low after Fed raises rates again

by Purvai Dua
20th Dec 18 9:41 am

UK shares on Thursday fell to their lowest in more than two years after the US Federal Reserve bank raised interest rates for the fourth time this year, sending global stocks spiralling down.

The FTSE 100 was down 1.3 per cent at 0850 GMT after hitting its lowest since August 4 2016. The UK indexes are on track for their worst year since the 2008 financial crisis, and the Fed’s tone deepened concerns already augmented by Brexit worries.

Japan’s benchmark Nikkei 225 index also closed at its lowest level since September last year.

Despite calls by President Donald Trump for the Fed to stop raising interest rates, the central bank stuck by a plan to keep repealing support from an economy it views as strong.

Bart Hordijk, Market Analyst at Monex Europe, commented: “Federal Reserve Chair Jerome Powell was a bit like Santa Claus during the Federal Open Market Committee press conference; he brought something for everyone. Doves were served first, as the FOMC projections for both growth and inflation were adjusted downwards marginally for 2018 and 2019. A more hawkish desert was served during the press conference as Powell continued to stress the strength of the US economy, while he also soothed the biggest fears of business people about the negative impact of trade tensions on the US economy.

“Powell dropped some subtle hints he thinks the neutral rate is higher than the lower bound estimate of 2.5%. For instance, he mentioned he doesn’t: “believe [monetary] policy is restrictive”, while at the start of the presser he emphasised was content with having rates above what some consider the neutral rate. Powell thus doesn’t seem to be fazed by the prospect of moving beyond what some consider is the neutral rate, which means markets may currently underprice the commitment of the Fed to two rate hikes during 2019. This hawkish agnosticism towards the neutral rate may be what set the tone for a stronger dollar during the FOMC press conference.”

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