Thursday, 14 June 2018

Markets mixed as Fed raises rates, US economy getting “temporary” boost from fiscal policy

Markets were mixed on Wednesday.

The S&P 500 fell 0.4 percent but the STOXX Europe 600 rose 0.2 percent. Earlier in Asia, the Nikkei 225 rose 0.4 percent but the Shanghai Composite fell 1.0 percent.

At its monetary policy meeting, the Federal Reserve decided to raise its benchmark federal funds rate by a quarter percentage point to a range of 1.75 to 2 percent.

“Today’s announcement, including updates to the post-meeting statement and to policymakers’ forecasts for growth, labor markets, inflation, and interest rates, reinforce our expectation that the FOMC will raise the funds rate a total of 4 times in 2018, and additional times in subsequent years,” wrote Ken Matheny, executive director US Economics at IHS Markit.

Alec Young, FTSE Russell managing director, said that “the economy has gotten better” and that the Fed decision was “a validation of the recovery”.

However, JP Morgan strategist David Kelly told CNBC that the economy will slow in the second half of 2019 and 2020.

“Fiscal policy is sort of at its maximum accelerated right now,” he said, suggesting that the rising economic activity being seen is just a “sugar rush” and is “probably temporary”.

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