Maybe Jay Powell isn’t the pushover that Wall Street hoped he was.
Shrugging off prickly complaints from President Trump, the Federal Reserve chairman on Wednesday raised interest rates by a quarter point and signaled more hikes were coming next year — a move that sent all three major stock indexes tumbling to 52-week lows.
The New York Post reports:
Despite mounting worries about a global economic slowdown, the Fed telegraphed two rate hikes for 2019, down from the three it indicated at the conclusion of its September meeting.
Wall Street looked surprised that Powell — whose hawkish move the president called “foolish” — didn’t signal he was reining in rate hikes more drastically.
The Dow Jones industrial average, which had climbed as much as 381 points ahead of the Fed’s announcement, plunged as much as 513 points into the red — hitting a fresh 52-week low — as Powell sounded defiant in an afternoon Q&A session.
“Political considerations have played no role whatsoever in our discussions or decisions about monetary policy,” Powell said in a press conference Wednesday.
That was a day after Trump had pleaded on Twitter, “Don’t let the market become any more illiquid than it already is. Stop with the 50 B’s. Feel the market, don’t just go by meaningless numbers. Good luck!”
Last month, Powell had goosed stocks when he said he believed the target rate was “just below” neutral — in sharp contrast to his October comment that the central bank was a “long way” from the neutral zone on rates. On Wednesday, Powell said the new federal funds rate of 2.5 percent is “at the lower end” of the normal range.
The blue-chip index recouped some of its losses to end the day down 351.98 points at 23,323.66 points — or, 1.5 percent, matching the drop by the broader S&P 500. Meanwhile, the tech-weighted Nasdaq shed 2.2 percent in Wednesday’s session.
Despite the panic, some analysts largely agreed with the Fed’s move.
“The Fed is doing the right thing. The market needs to grow up and stop begging for easy money,” said Jack Ablin of Cresset Wealth Advisors.
Years of low interest rates have been a boon to the stock market and corporations seeking cheap credit. But as the economy has recovered from the financial crisis, the Fed has had to tighten monetary policy to prevent the economy from overheating.
The Fed said Wednesday that “some further gradual increases” in rates would be necessary after pointing to “strong” job gains, low unemployment and household spending growing “strongly.”
“The drumbeat to pause the rate hiking campaign was coming from all directions, but the Fed chose to credibly and independently maintain their course of action by raising the policy rate,” Charlie Ripley, senior investment strategist at Allianz Investment Management, said in a note.
It was the ninth time the Fed raised rates since the financial crisis and the fourth rate hike of the year.
But jittery investors, worried about the Fed punchbowl being taken away, sent major stock indices into correction territory in the weeks leading up to the Fed’s meeting.
Meanwhile, President Trump ramped up his attacks against the Fed in recent months, claiming that the rate hikes have stifled economic stimulus.
“I’m doing deals, and I’m not being accommodated by the Fed,” Trump said last month in an interview with The Washington Post.
“So far, I’m not even a little bit happy with my selection of Jay [Powell],” he added.