Published: Thu, March 21, 2019
Markets | By Erika Turner

Stocks move lower ahead of Federal Reserve policy decision

Stocks move lower ahead of Federal Reserve policy decision

Federal Reserve Chair Jerome Powell listens to a reporter's question during a news conference in Washington, on March 20, 2019.

Stock markets are subdued ahead of a monetary policy statement by the U.S. Federal Reserve in which the central bank is expected to say it will be patient about raising interest rates further.

Benchmark U.S. stock market indexes swung higher after the Fed's statement was released, and key Treasury security yields dropped to the lowest since early January. It also announced that it will stop shrinking its bond portfolio in September, a step that should help hold down long-term rates.

Combined, the moves signal no major increases in borrowing rates for consumers and businesses. What's more, with inflation remaining mild, the Fed feels no pressure to tighten credit.

Three members predicted two increases, and three others expected three or four.

The projections go further than the one-hike forecast analysts had expected in a Bloomberg survey. The Fed increased rates four times previous year and three times in 2017.

Investors' immediate focus was on the Fed to see whether the central bank will affirm its commitment to "patient" monetary policy and for clues about the likely path of US borrowing costs.

Bond prices regained ground after seeing initial weakness but still ended the day in negative territory.

The Dow Jones Industrial Average fell 26.72 points, or 0.1 percent, to 25,887.38, the S&P 500 lost 0.37 points, or 0.01 percent, to 2,832.57 and the Nasdaq Composite added 9.47 points, or 0.12 percent, to 7,723.95.

"Powell's suggestion that the Fed is on hold this year is important", she said.

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Markets expect the Fed to strike a dovish tone when it meets, and bets on an interest rate cut have increased after weaker-than-expected manufacturing data on Friday.

The 10-0 decision held the target range of the federal funds rate steady at 2.25% to 2.5%.

Economists warned that a forecast of zero hikes could encourage markets to begin expecting the central bank to reverse directions and actually begin cutting rates, rather than increasing them. Powell is expected to note that while the US economy is on firm footing, it faces risks from slowing growth and trade conflicts.

The central bank's theme of patience reflects its calming response since the start of the year to slow growth at home and overseas, a nervous stock market and persistently mild inflation. But at his news conference, Powell played down that prospect.

That view is supported by the CME Group, which tracks trading in futures contracts on the Fed's benchmark rate.

USA stock indexes finished modestly higher on Monday, extending the market's solid gains from a rally last week.

With worldwide financial development appearing to sluggish, traders were focused on the Fed gathering, which kicks off its two-day policy meeting later in the day, for clues about the likely path of US borrowing costs.

While the central bank is very close to its twin goals of low and stable inflation and full employment, Chairman Jerome Powell and his colleagues must contend with risks from overseas, including slowing growth in Europe and China and possible spillovers from Britain's exit from the European Union.

That message spooked investors, who anxious about the prospect of steadily higher borrowing rates for consumers and businesses and perhaps a further economic slowdown.

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