Fed Offers Clarity, While Trump Administration Sends Muddled Messages to Investors

Stocks broke early in the day because Trump’s comments confused some traders. These comments were on top of other mixed messages from his administration throughout the negotiations. Essentially, investors were prepared for a dovish Fed, but the news was even more dovish than they were expecting.
James Hyerczyk
Stock Chart Up

The major Asian stock indexes are trading mostly higher on Thursday after the U.S. Federal Reserve announced on Wednesday that it was keeping its benchmark interest rate unchanged, while indicating it would not raise rates in 2019. The news was a complete reversal from its policy in December, when the central bank projected two interest rate hikes for 2019.

At 01:52 GMT, Japan’s Nikkei 225 Index is trading 21608.92, up 42.07 or +0.20%. Hong Kong’s Hang Seng Index is at 29326.80, up 5.83 or +0.02% and South Korea’s KOSPI Index is trading 2198.49, up 21.39 or +0.98%. In China, the Shanghai Index is at 3090.74, up 0.10 or +0.01%. In Australia, the S&P/ASX 200 is at 6146.20, down 19.10 or -0.31%.

Fed Flips to “More Dovish”

The Fed’s benchmark interest rate is currently in a range of 2.25 percent to 2.5 percent.

Essentially, investors were prepared for a dovish Fed, but the news was even more dovish than they were expecting.

The Fed also downgraded its economic forecast and said it plans to end its program of reducing the bonds it holds on its balance sheet in six months. The Fed cut its forecast of U.S. economic growth this year to 2.1 percent, down from its previous projection of 2.3 percent and the roughly 3 percent pace of expansion in 2018.

In its policy statement, the Fed said that the job market remains “strong” but noted that “growth of economic activity has slowed” since late 2018.

Additionally, Fed Chair Jerome Powell seemed to be unfazed by the sudden change in policy. He said that despite the recent dip in economic growth that “economic fundamentals are still very strong,” adding that Fed officials “see a favorable outlook for this year.”

Powell went on to say that “We foresee some weakening, but we don’t see a recession.”

Trump Administration’s Mixed Messages

With the Fed out of the way, Asian traders are likely to shift their focus back to the U.S.-China trade negotiations. On Wednesday, U.S. equity markets were pressured early in the session before the Fed announcements after President Donald Trump said that his administration’s tariffs on Chinese imports could stay in place indefinitely until Beijing complies with a still-developing trade deal – which the president said “is coming along nicely.”

“We’re not talking about removing [tariffs], we’re talking about leaving them for a substantial period of time, because we have to make sure that if we do the deal with China that China lives by the deal,” Trump told reporters on the White House lawn as he left to visit an Ohio manufacturing plant.

Stocks broke early in the day because Trump’s comments confused some traders. These comments were on top of other mixed messages from his administration throughout the negotiations. Furthermore, on Tuesday, Bloomberg News reported that China had backed off certain concessions as it sought assurances that the U.S. would remove tariffs. However, The Wall Street Journal later reported that trade talks are in their final stages.

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