Federal Reserve raises its key interest rate for the first time in nearly a decade
U.S. stocks rallied on Wednesday, 16 December 2015 extending gains to a third straight session after the Federal Reserve raised its key interest rate for the first time in nearly a decade and emphasized a gradual path for future rate hikes. The highly anticipated move was read as a vote of confidence in the U.S. economy.
The Dow Jones Industrial Average jumped 224.18 points, or 1.3%, to 17,749.09. Meanwhile, the Nasdaq Composite advanced 75.77 points, or 1.5%, to 5,071.13. The S&P 500 rose rose 29.66 points, or 1.5%, to 2,073.07 and turned positive for the year. Gains were broad based, with nine of its 10 main sectors trading higher. Utilities, telecoms led the gainers. Twenty eight out of thirty Dow components ended higher led by GE and Goldman Sachs.
Equity indices spiked at the start of the trading day, but the first half of the session featured a slow drip from opening highs as investors employed some caution ahead of the FOMC rate announcement; however, a rally to new highs unfolded during the late afternoon.
Fed policy makers announced Wednesday that they will lift the central bank's benchmark short-term borrowing rate by a quarter-point to a range of 0.25% to 0.5%. It was the first increase since 2006.
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On Wednesday, the Federal Reserve lived up to expectations, calling for a 25-basis point hike to the federal funds target range, which had been stuck in the 0.00-0.25% range for exactly seven years. Interestingly, today's rate hike did not stop the committee from slightly lowering its core PCE inflation outlook for 2016 to 1.5-1.7% from 1.5-1.8% that had been expected in September.
The Dollar Index displayed some volatility, but ended in the green on Wednesday. The index saw some pressure as Fed Chair Janet Yellen addressed the media, stressing the Fed's intention to stick to a gradual tightening path. Ms. Yellen acknowledged that the rate hike is taking place while inflation is well below the Fed's 2.0% target, but the Fed Chair believes that inflation will return to the 2.0% target once transitory factors fade away.
Economic data at Wall Street on Wednesday, included Housing Starts, Building Permits, Industrial Production, and MBA Mortgage Index. Housing starts were at a seasonally adjusted annual rate (SAAR) of 1.173 million in November. That was 10.5% above October's revised level of 1.062 million (from 1.060 million) and above the consensus estimate of 1.135 million. Building permits soared to a SAAR of 1.289 million. That was 11% above the revised October rate of 1.161 million (prior 1.150 million) and well ahead of the consensus estimate of 1.150 million.
Separately, Industrial production declined 0.6% in November on the heels of a downwardly revised 0.4% decline (from -0.2%) in October The November reading was well below the consensus, which expected a downtick of 0.1%. The November decline was paced by a 4.3% drop in utilities and a 1.1% decrease in mining activities. The weekly MBA Mortgage Index fell 1.1% to follow last week's 1.2% increase.
Bullion prices settled higher on Wednesday, 16 February 2016 at Comex. In anticipation of the Fed lifting rates gold and silver prices jumped but then slipped in electronic trading shortly after the announcement. Gold settled before the Fed's decision was released Wednesday at 2 p.m. Eastern.
Gold prices jumped $15.20, or 1.4%, to settle at $1,076.80 an ounce. March silver jumped by 47.8 cents, or 3.5%, to end at $14.248 an ounce.
Crude prices registered big drop at Nymex on Wednesday, 16 December 2015. Prices fell after the U.S. government reported a surprise jump in last week's domestic crude supplies and the Federal Reserve announced its first interest-rate hike in more than a decade, sending oil prices back to levels not seen since early 2009.
January West Texas Intermediate crude dropped $1.83, or 4.9%, to settle at $35.52 a barrel on the New York Mercantile Exchange. The settlement was the lowest since February 2009.
Unlike stocks, Treasuries held slim losses going into the afternoon, but they lurched back to flat after the Fed announcement; however, the 10-yr note dipped back into the red during the late afternoon, pushing the benchmark yield up to 2.29% (+2 bps).
Bullion prices settled higher on Wednesday, 16 February 2016 at Comex. In anticipation of the Fed lifting rates gold and silver prices jumped but then slipped in electronic trading shortly after the announcement. Gold settled before the Fed's decision was released Wednesday at 2 p.m. Eastern.
Gold prices jumped $15.20, or 1.4%, to settle at $1,076.80 an ounce. March silver jumped by 47.8 cents, or 3.5%, to end at $14.248 an ounce.
Crude prices registered big drop at Nymex on Wednesday, 16 December 2015. Prices fell after the U.S. government reported a surprise jump in last week's domestic crude supplies and the Federal Reserve announced its first interest-rate hike in more than a decade, sending oil prices back to levels not seen since early 2009.
January West Texas Intermediate crude dropped $1.83, or 4.9%, to settle at $35.52 a barrel on the New York Mercantile Exchange. The settlement was the lowest since February 2009.
Prices had dipped to as low as $35.33 immediately after the Fed decision, which came shortly before oil's settlement. They had fallen under $36 after the U.S. supply data were released early Wednesday.
The U.S. Energy Information Administration reported that crude supplies climbed by 4.8 million barrels for the week ended 11 December 2015. 1. Gasoline supplies rose 1.7 million barrels, while distillate stockpiles added 2.6 million barrels last week, according to the EIA.
Today's participation was well above average as more than 950 million shares changed hands at the NYSE floor.
Tomorrow, weekly Initial Claims (consensus 276,000), December Philadelphia Fed Survey (consensus 2.0), and Q3 Current Account Balance (Briefing.com consensus deficit of $114.20 billion) will be reported at 8:30 ET while November Leading Indicators will cross the wires at 10:00 ET.
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