Markets Right Now: Stocks plunge again, Dow sinks 464 points

Dwayne Harmon
December 22, 2018

It said "some further" rate hikes would be necessary in the year ahead, with its policy-makers projecting two rate hikes on average next year instead of three they saw back in September, a change that was also largely in line with expectations.

In a series of recent tweets, Trump urged the Fed to "feel the market" and halt its rate hikes altogether.

And already policymakers have begun discussing how best to communicate that shift to the public, according to minutes of the Fed's last meeting in November.

In the morning, the Dow had jumped almost 400 points after Williams told CNBC that the Fed would pay close attention to the economy as it considered raising rates in the future.

US stocks rebounded briefly after comments by a Federal Reserve official eased investor worries that the central bank was locked into raising rates in 2019.

"As we have stated for a while, the sell-off in the financial markets that has occurred during the fourth quarter is a needed correction and is normal for this part of the economic cycle, especially considering that we are now in the later stages of the longest bull market in history", Spika said.

Commonwealth Bank declined 0.6 per cent to a one-month low, while Australia & New Zealand Banking Group closed 1.1 per cent lower to its lowest in over two years.

"We are encouraging investors to focus on solid fundamentals", Lynch said.

"The list of headwinds has been growing throughout the year", he said.

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"Powell dropped some subtle hints he thinks the neutral rate is higher than the lower bound estimate of 2.5%". But exactly where that point is depends on what the latest economic data may show. All of the major indexes have lost 16 to 26 percent from their highs this summer and fall.

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. That is, by lowering interest rates, the Fed will make borrowing cheaper, encouraging more investment and consumer spending.

Williams tried to correct the market impression that two interest rate increases are set in stone for next year, highlighting a slight change of language in the policy statement issued Wednesday. Elaborating further on his comments, Kolanovic said that the exact timing of the crash is dependent on the speed at which the Fed "hikes interest rates and reverses bond purchases". In October he described the Fed as "crazy", "loco", "going wild" and "out of control" for gradually raising rates. There is little confidence that the global economy is strong enough to support itself on its own. But it did note potential threats by adding language to say it would monitor global developments and assess their impact on the economy. Many economists are predicting that the United States could sink into a recession by 2020. Those estimates are far below the Trump administration's insistence that its tax cuts would help accelerate annual growth to 3 percent in coming years.

Asian and European markets were mostly down Friday, still reeling from the effect of Wednesday's U.S. Federal Reserve announcement that it was lowering its 2019 growth forecast from 2.5 percent to 2.3 percent.

By most accounts, the US economy remains solid, but financial conditions have tightened and there are signs of a weakening housing sector. But this time, the risks to the economy seem to be rising.

"The market was looking for an even more cautious assessment given that the equity markets have been suffering and the economy is showing signs of a slowdown globally". Trump's trade conflict with Beijing could, over time, undermine the world's two largest economies.

However, investors were not placated by the slower pace of future rate increases.

There are also fears that the brisk pace of US growth this year reflected something of a sugar high, with the economy artificially pumped up by tax cuts and a boost in government spending. Bullish gold investors think prices are likely to rise due to a subdued outlook towards US interest rates, the USA economy and lower demand for risky assets.

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