In recent years, the Fed has managed to telegraph its actions weeks in advance to prepare the financial markets for any shift. Worries about corporate earnings - particularly in the United States, where profit growth is set to slow sharply next year after reaching 20 per cent this year - and a fierce sell-off in once high-flying technology stocks are adding to the gloom.
On a global level, a staggering US$15 trillion has been wiped off the value of equity markets since late January, according to Bloomberg, with China accounting for 13 per cent of the losses.
Other major central banks, meanwhile, are still anchored at zero interest rates, making every further step by the Fed that much riskier because it draws capital toward the United States, strengthens the dollar, and potentially weakens USA exports and growth.
Amid stock market turmoil and President Donald Trump's attacks on the Federal Reserve for raising interest rates, Fed officials announced another rate hike on Wednesday - but signaled a slower path of increases in the coming year.
"So, seriously something to keep a close eye on". "The Fed needs to be paying attention to what's going on".
At a news conference, Fed chairman Jerome Powell said the move "was appropriate for what is a very healthy economy". However, during the FOMC's last meeting in September, slightly more committee members projected three rate hikes in 2019. But things are less certain now, and the market hates uncertainty.
The Fed has said it's "close to done" and its decisions will be data dependent, while US equities remain "a tremendous value", Mnuchin said. Failing to do so would have reinforced investor angst about an economic slowdown. That is, the Fed does tend to put a "floor" under stocks - by lowering rates - to prevent them from falling too far but has less interest in establishing a ceiling to prevent them from rising too high. That's generally good for the economy. Bonds yields are benchmarks for many kinds of long-term loans including mortgages.
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The Nasdaq fell 108 points, or 1.6 per cent, to 6,528.
New data yesterday showed the Fed's preferred inflation index slowed to 1.8 per cent in November, below the central bank's target.
Despite the Fed's forecasts that USA economic growth will slow next year and the unemployment rate begin to tick up the following year, economists aren't buying that a rate cut will materialize in 2020.
Speaking later on Thursday, U.S. Treasury Secretary Steven Mnuchin suggested the Fed may not even go through with the rate hikes that have driven markets to their "completely overblown" reaction.
The possibility of a partial shutdown of the federal government also loomed over the market on Thursday, as funding for the government runs out at midnight Friday. "And markets have to react, live, to that "on the one hand, on the other hand" that Powell has to play in this economy". In October, the U.S. Commerce Department reported that new home sales dropped 8.9 percent compared to September, marking an nearly two-and-a-half-year low. Brent crude, the standard for global oil prices, fell 1 percent to $53.82 a barrel in London.
After early gains, bond prices headed lower. Of eight major asset classes tracked by Bloomberg, just two are on track to deliver positive total returns this year. When the 10-year yield falls below the two-year yield, investors call it an "inverted yield curve".
In recent years, investors had grown used to Fed officials telegraphing any future rate changes well in advance. American stocks are tumbling like they did during the Great Depression, reportedly alarming the markets."This is clearly a disappointment for those hoping for a dovish rate hike", said David Joy, Chief Market Strategist at Ameriprise Financial in Boston.
In France, the CAC 40 lost 1.8 percent and Germany's DAX fell 1.4 percent.
Amongst other precious metals, palladium slipped 0.1 percent to $1,259.24 per ounce. Indexes in Italy, Portugal and Spain took bigger losses. Sydney's S&P-ASX 200 retreated 1.2 percent to 5,440.70 and Hong Kong's Hang Seng gave up 0.8 percent to 25,426.24. Seoul's Kospi shed 0.9 percent.
Trump has sought to induce the Fed to keep interest rates low during his presidency.