Stock and bond ETFs slipped on Wednesday as the Federal Reserve announced another moderate rate hike and stated its intent to raise rates two more times later this year.
Following the Fed’s announcement mid-Wednesday to raise interest rates 25 basis points, effectively raising the federal funds rate from 1.75% to 2%, the iShares 7-10 Year Treasury Bond ETF (NASDAQ: IEF) dipped 0.2% and the iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) fell 0.3%, which wasn’t a surprise as older debt with lower yields become less attractive in a higher rate environment.
The Invesco DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), which tracks dollar movements against a basket of developed currencies, strengthened 0.2% in response to the tightening monetary policy.
Meanwhile, the U.S. equity market slipped into the red, with the SPDR S&P 500 ETF (NYSEArca: SPY) down 0.2%, on the prospects of slower growth with a higher rate environment ahead.
Four Rate Hikes for 2018
The Federal Reserve announced its second rate hike this year and upgraded their forecast to four total increases in 2018 as unemployment dips to 18-year lows and inflation rises above its target, reports Craig Torres for Bloomberg.
“The committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the committee’s symmetric 2 percent objective over the medium term,” according to its statement following a meeting in Washington.
The Fed said the economy is growing at “solid” pace and risks remain “roughly balanced.” The language modification indicated that Fed officials are becoming increasingly confident in the state of the U.S. economic strength. Additionally, risks to the economic outlook were considered “roughly balanced,” which mirrors how it painted economic risks in previous statements. The language also shows the Fed holds a good view of the U.S. economy and indicates officials anticipate stronger growth in line with the risk of seeing potentially weaker growth.
“Economic activity has been rising at a solid rate,” the FOMC said in its statement. “Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly.”
For more information on the markets, visit our current affairs category.