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The Federal Reserve took a small step to begin unwinding its crisis-driven asset purchases on Wednesday, but since the move was widely expected, the meeting's real drama hinged on the outlook for future rate hikes.
Despite a string of benign inflation readings, Fed policymakers stuck to their guns, indicating a likelihood of four more rate hikes
through the end of 2018.
The Federal Reserve took a small step to begin unwinding its crisis-driven asset purchases on Wednesday, but since the move was widely expected, the meeting's real drama hinged on the outlook for future rate hikes.
Despite a string of benign inflation readings, Fed policymakers stuck to their guns, indicating a likelihood of four more rate hikes through the end of 2018.
The updated outlook reflects a stark contrast with financial-market pricing, which sees just one rate hike (in December) likely through August 2018, according to the CME Group FedWatch tool. The odds of a rate hike by December rose to about 67% from 58% a day ago and just below 50-50 a week earlier.
Starting in October, the Fed said it will gradually begin scaling back its $4.5 trillion balance sheet by letting $10 billion in principal run off per month, rather than continuing to reinvest all proceeds of maturing Treasury and mortgage bonds.
The Federal Reserve took a small step to begin unwinding its crisis-driven asset purchases on Wednesday, but since the move was widely expected, the meeting's real drama hinged on the outlook for future rate hikes.
Despite a string of benign inflation readings, Fed policymakers stuck to their guns, indicating a likelihood of four more rate hikes through the end of 2018.
The updated outlook reflects a stark contrast with financial-market pricing, which sees just one rate hike (in December) likely through August 2018, according to the CME Group FedWatch tool. The odds of a rate hike by December rose to about 67% from 58% a day ago and just below 50-50 a week earlier.
Starting in October, the Fed said it will gradually begin scaling back its $4.5 trillion balance sheet by letting $10 billion in principal run off per month, rather than continuing to reinvest all proceeds of maturing Treasury and mortgage bonds.
In a post-meeting press conference, Fed Chair Janet Yellen said that the Fed's projections reflect a consensus that surprisingly tepid inflation this year is "due to transitory factors that are likely to disappear over the coming year."
Yellen said members would alter their outlook if incoming inflation data continue to undershoot expectations. Yet she also noted a risk that tight labor markets could push up wage and price inflation to an extent that the Fed has to respond by hiking rates faster than expected, potentially risking a recession.
Yellen's term is set to expire in February, and President Trump hasn't said if he will reappoint her. Trump has several other Fed vacancies to fill.
After the Fed announcement, the Dow Jones industrial average, S&P 500 index and Nasdaq composite initially after trading mixed on the stock market today. But following Yellen's comments, the Dow closed up 0.2% and S&P 500 0.1%, while the Nasdaq pared its loss to 0.1%.
Treasury yields rose on the Fed announcement.
Bank stocks, which have snapped out their funk lately and can get a margin boost from higher rates, were bid higher on the news. On Monday, shares of Citigroup (C) broke above a 69.96 flat-base buy point, often a precursor of further near-term gains, to hit its highest level since January 2009. Bank of America (BAC) and JPMorgan Chase (JPM) both have been making a run at buy points. BofA and JPMorgan rose nearly 1% after the Fed news, moving to just below buy range.
The Federal Reserve took a small step to begin unwinding its crisis-driven asset purchases on Wednesday, but since the move was widely expected, the meeting's real drama hinged on the outlook for future rate hikes.
Despite a string of benign inflation readings, Fed policymakers stuck to their guns, indicating a likelihood of four more rate hikes through the end of 2018.
The updated outlook reflects a stark contrast with financial-market pricing, which sees just one rate hike (in December) likely through August 2018, according to the CME Group FedWatch tool. The odds of a rate hike by December rose to about 67% from 58% a day ago and just below 50-50 a week earlier.
Starting in October, the Fed said it will gradually begin scaling back its $4.5 trillion balance sheet by letting $10 billion in principal run off per month, rather than continuing to reinvest all proceeds of maturing Treasury and mortgage bonds.
In a post-meeting press conference, Fed Chair Janet Yellen said that the Fed's projections reflect a consensus that surprisingly tepid inflation this year is "due to transitory factors that are likely to disappear over the coming year."
Yellen said members would alter their outlook if incoming inflation data continue to undershoot expectations. Yet she also noted a risk that tight labor markets could push up wage and price inflation to an extent that the Fed has to respond by hiking rates faster than expected, potentially risking a recession.
Yellen's term is set to expire in February, and President Trump hasn't said if he will reappoint her. Trump has several other Fed vacancies to fill.
After the Fed announcement, the Dow Jones industrial average, S&P 500 index and Nasdaq composite initially after trading mixed on the stock market today. But following Yellen's comments, the Dow closed up 0.2% and S&P 500 0.1%, while the Nasdaq pared its loss to 0.1%.
Treasury yields rose on the Fed announcement.
Bank stocks, which have snapped out their funk lately and can get a margin boost from higher rates, were bid higher on the news. On Monday, shares of Citigroup (C) broke above a 69.96 flat-base buy point, often a precursor of further near-term gains, to hit its highest level since January 2009. Bank of America (BAC) and JPMorgan Chase (JPM) both have been making a run at buy points. BofA and JPMorgan rose nearly 1% after the Fed news, moving to just below buy range.
IBD'S TAKE: Don't look to the Fed for a green light to buy stocks or a red light to sell them. IBD readers were ready for the stock market's push to record heights this month because on Aug. 22, IBD shifted its market trend gauge to "confirmed uptrend" from "uptrend under pressure," the equivalent of a flashing yellow light turning green. Read IBD's The Big Picture column each day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines.
The rate outlook also looms large for homebuilders, among the best performing industry group this year as interest rates have undershot expectations. NVR (NVR) and D.R. Horton (DHI) are ranked No. 1 and No. 2 in the Building-Residential/Commercial industry group by IBD Stock Checkup, based on earnings, sales and margin trends, as well as relative stock performance.
Shares of NVR and D.R. Horton lost more than 1% after the Fed announcement.
While there was some evidence of incremental dovishness at the Fed, it wasn't enough to make a difference. In June, 12 of 16 members expected 4 more rate hikes through 2018. Now, it's 11 of 16, meaning there was one new dove. Also, the group of policymakers expects two further rate hikes in 2019, down from three in June. Prices for core personal consumption expenditures are expected to rise 1.9% in 2018 vs. a 2.0% projection in June.
But markets focused more on the intermediate term than the long term.
"In addition to the macro tailwind of higher rates, banks should benefit from regulatory changes that are currently not reflected in share prices," David Kostin, Goldman Sachs chief equity strategist, wrote in a note to clients this week.
Kostin said he doesn't expect the gradual reversal of the Fed's asset purchases, known as quantitative easing, to result in another "taper tantrum," the name for the sell-off sparked by then-Fed Chair Ben Bernanke's signal in 2013 that the central bank would begin slowing its QE asset purchases.
Still, a "reinvestment reflux" isn't out of the question. Ahead of the Fed announcement, IBD explained how a number of factors could lead Treasury yields to continue their resurgence over the next few months. Those include a flood of new Treasury issuance stemming from the recent deal to lift the debt ceiling, growing prospects of a deficit-increasing tax cut and a move by the European Central Bank to begin curbing its bond buys.
Despite a string of benign inflation readings, Fed policymakers stuck to their guns, indicating a likelihood of four more rate hikes
through the end of 2018.
The Federal Reserve took a small step to begin unwinding its crisis-driven asset purchases on Wednesday, but since the move was widely expected, the meeting's real drama hinged on the outlook for future rate hikes.
Despite a string of benign inflation readings, Fed policymakers stuck to their guns, indicating a likelihood of four more rate hikes through the end of 2018.
The updated outlook reflects a stark contrast with financial-market pricing, which sees just one rate hike (in December) likely through August 2018, according to the CME Group FedWatch tool. The odds of a rate hike by December rose to about 67% from 58% a day ago and just below 50-50 a week earlier.
Starting in October, the Fed said it will gradually begin scaling back its $4.5 trillion balance sheet by letting $10 billion in principal run off per month, rather than continuing to reinvest all proceeds of maturing Treasury and mortgage bonds.
The Federal Reserve took a small step to begin unwinding its crisis-driven asset purchases on Wednesday, but since the move was widely expected, the meeting's real drama hinged on the outlook for future rate hikes.
Despite a string of benign inflation readings, Fed policymakers stuck to their guns, indicating a likelihood of four more rate hikes through the end of 2018.
The updated outlook reflects a stark contrast with financial-market pricing, which sees just one rate hike (in December) likely through August 2018, according to the CME Group FedWatch tool. The odds of a rate hike by December rose to about 67% from 58% a day ago and just below 50-50 a week earlier.
Starting in October, the Fed said it will gradually begin scaling back its $4.5 trillion balance sheet by letting $10 billion in principal run off per month, rather than continuing to reinvest all proceeds of maturing Treasury and mortgage bonds.
In a post-meeting press conference, Fed Chair Janet Yellen said that the Fed's projections reflect a consensus that surprisingly tepid inflation this year is "due to transitory factors that are likely to disappear over the coming year."
Yellen said members would alter their outlook if incoming inflation data continue to undershoot expectations. Yet she also noted a risk that tight labor markets could push up wage and price inflation to an extent that the Fed has to respond by hiking rates faster than expected, potentially risking a recession.
Yellen's term is set to expire in February, and President Trump hasn't said if he will reappoint her. Trump has several other Fed vacancies to fill.
After the Fed announcement, the Dow Jones industrial average, S&P 500 index and Nasdaq composite initially after trading mixed on the stock market today. But following Yellen's comments, the Dow closed up 0.2% and S&P 500 0.1%, while the Nasdaq pared its loss to 0.1%.
Treasury yields rose on the Fed announcement.
Bank stocks, which have snapped out their funk lately and can get a margin boost from higher rates, were bid higher on the news. On Monday, shares of Citigroup (C) broke above a 69.96 flat-base buy point, often a precursor of further near-term gains, to hit its highest level since January 2009. Bank of America (BAC) and JPMorgan Chase (JPM) both have been making a run at buy points. BofA and JPMorgan rose nearly 1% after the Fed news, moving to just below buy range.
The Federal Reserve took a small step to begin unwinding its crisis-driven asset purchases on Wednesday, but since the move was widely expected, the meeting's real drama hinged on the outlook for future rate hikes.
Despite a string of benign inflation readings, Fed policymakers stuck to their guns, indicating a likelihood of four more rate hikes through the end of 2018.
The updated outlook reflects a stark contrast with financial-market pricing, which sees just one rate hike (in December) likely through August 2018, according to the CME Group FedWatch tool. The odds of a rate hike by December rose to about 67% from 58% a day ago and just below 50-50 a week earlier.
Starting in October, the Fed said it will gradually begin scaling back its $4.5 trillion balance sheet by letting $10 billion in principal run off per month, rather than continuing to reinvest all proceeds of maturing Treasury and mortgage bonds.
In a post-meeting press conference, Fed Chair Janet Yellen said that the Fed's projections reflect a consensus that surprisingly tepid inflation this year is "due to transitory factors that are likely to disappear over the coming year."
Yellen said members would alter their outlook if incoming inflation data continue to undershoot expectations. Yet she also noted a risk that tight labor markets could push up wage and price inflation to an extent that the Fed has to respond by hiking rates faster than expected, potentially risking a recession.
Yellen's term is set to expire in February, and President Trump hasn't said if he will reappoint her. Trump has several other Fed vacancies to fill.
After the Fed announcement, the Dow Jones industrial average, S&P 500 index and Nasdaq composite initially after trading mixed on the stock market today. But following Yellen's comments, the Dow closed up 0.2% and S&P 500 0.1%, while the Nasdaq pared its loss to 0.1%.
Treasury yields rose on the Fed announcement.
Bank stocks, which have snapped out their funk lately and can get a margin boost from higher rates, were bid higher on the news. On Monday, shares of Citigroup (C) broke above a 69.96 flat-base buy point, often a precursor of further near-term gains, to hit its highest level since January 2009. Bank of America (BAC) and JPMorgan Chase (JPM) both have been making a run at buy points. BofA and JPMorgan rose nearly 1% after the Fed news, moving to just below buy range.
IBD'S TAKE: Don't look to the Fed for a green light to buy stocks or a red light to sell them. IBD readers were ready for the stock market's push to record heights this month because on Aug. 22, IBD shifted its market trend gauge to "confirmed uptrend" from "uptrend under pressure," the equivalent of a flashing yellow light turning green. Read IBD's The Big Picture column each day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines.
The rate outlook also looms large for homebuilders, among the best performing industry group this year as interest rates have undershot expectations. NVR (NVR) and D.R. Horton (DHI) are ranked No. 1 and No. 2 in the Building-Residential/Commercial industry group by IBD Stock Checkup, based on earnings, sales and margin trends, as well as relative stock performance.
Shares of NVR and D.R. Horton lost more than 1% after the Fed announcement.
While there was some evidence of incremental dovishness at the Fed, it wasn't enough to make a difference. In June, 12 of 16 members expected 4 more rate hikes through 2018. Now, it's 11 of 16, meaning there was one new dove. Also, the group of policymakers expects two further rate hikes in 2019, down from three in June. Prices for core personal consumption expenditures are expected to rise 1.9% in 2018 vs. a 2.0% projection in June.
But markets focused more on the intermediate term than the long term.
"In addition to the macro tailwind of higher rates, banks should benefit from regulatory changes that are currently not reflected in share prices," David Kostin, Goldman Sachs chief equity strategist, wrote in a note to clients this week.
Kostin said he doesn't expect the gradual reversal of the Fed's asset purchases, known as quantitative easing, to result in another "taper tantrum," the name for the sell-off sparked by then-Fed Chair Ben Bernanke's signal in 2013 that the central bank would begin slowing its QE asset purchases.
Still, a "reinvestment reflux" isn't out of the question. Ahead of the Fed announcement, IBD explained how a number of factors could lead Treasury yields to continue their resurgence over the next few months. Those include a flood of new Treasury issuance stemming from the recent deal to lift the debt ceiling, growing prospects of a deficit-increasing tax cut and a move by the European Central Bank to begin curbing its bond buys.
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ILEEAVIV אתמול, 21:34