The outcome of the Fed meeting was as largely as expected. The Central Bank is on course to increase rates in December as strong economic growth, higher tariffs and rising wages look set to spur inflation.
The Fed stated “economic activity gas been rising at a strong rate” and job gains “have been strong” while repeating its outlook for “further gradual” rate increases. Risks to the outlook appear “roughly balanced” while inflationary expected were described as “little changed on balance.”
Fed officials will update their forecasts in December having previously penciled in three increases in 2019 which would put the main rate roughly at levels that policy makers see as neither boosting nor restraining the economy.
There was little market reaction to the outcome of the meeting. At the close the NASDAQ was off about 0.80% while the Dow was unchanged. Treasuries were also relatively unchanged but crude entered into a bear market, defined as dropping more than 20% in less than 30 days. One month ago oil was destined to rise to $100 barrel from $75 and 30 days later closing around $60/barrel.
The reason for the decline is record production from most oil producers to increase inventories ahead of the Iranian sanctions. President Trump was openly critical towards Saudi Arabia to increase production utilizing all its spare capacity to stem the rise in prices. Saudi Arabia complied. OPEC is now discussing production cuts at its upcoming meeting.
As noted, at current production levels, there is no spare global capacity an environment itself that is inherently bullish.
What will happen today?
Last night the foreign markets were down. London was down 0.94%, Paris down 0.93% and Frankfurt down 0.55%. China was down 1.39%, Japan down 1.05% and Hang Sang down 2.39%.
The Dow should open significantly lower on interest rate concerns, trade fears and political haranguing. The 10-year is up 8/32 to yield 3.21%.