By Mark DeCambre and Sara Sjolin, MarketWatch
Dollar jumps to 2-week high as Federal Reserve says it will
start asset next month
U.S. stock benchmarks retreated Wednesday afternoon as the
Federal Reserve announced that, for the first time in nine years,
it would start reducing the size of its $4.5 trillion asset
portfolio starting in October.
The U.S. central bank kept interest rates unchanged, as widely
expected, but said it would start to shrink its balance sheet by
$10 billion a month. The start of the asset unwind also places
another rate increase before the end of the year by the Fed back on
the table, signaling more definitively an end to the easy-money
policies in the U.S. and an unprecedented unwind of crisis-era
asset purchases that had helped to buoy markets over the past
decade.
"Even though this is a slow and deliberate and thoughtful unwind
plan, it is not without its potential to rattle markets," said
Kristina Hooper, global market strategist at Invesco.
The Dow Jones Industrial Average was down 41 points, or 0.2%, at
22,337, after hitting a fresh intraday record at 22,399.33.
The S&P 500 index was down 8 points, or 0.3%, at 2,597,
after briefly touching its own fresh intraday day record at
2,508.85.
The Nasdaq Composite Index , meanwhile, was down a firmer 43
points, or 0.7%, at 6,420.
Meanwhile, 10-year Treasury note yield jumped to 2.27%, compared
with 2.23% earlier in the session, with expectations for higher
rates and additional monetary tightening, via the portfolio
decrease, encouraging selling in government bonds, pushing yields,
which move in the opposite direction to prices, higher. The dollar,
which draws bidders in a higher interest-rate regime, enjoyed a
fillip, up 0.7% at 92.475, based on the ICE U.S. Dollar Index ,
which measures the buck against a half-dozen currencies.
Read:Why stock market investors shouldn't sweat a shrinking Fed
balance sheet
(http://www.marketwatch.com/story/why-stock-market-investors-shouldnt-sweat-a-shrinking-fed-balance-sheet-2017-09-19)
The Fed kept its targeted federal-funds rate between 1% to
1.25%, and said the devastation caused by Hurricanes Harvey and
Irma isn't likely to materially alter the course of the economy
over the medium term.
The Fed's interest rate projections, known as the so-called dot
plot, suggests an interest-rate hike in December and three more in
2018.
A news conference hosted by Chairwoman Janet Yellen was set for
2:30 p.m. Eastern.
Check out:A live blog of the Fed's news conference
(http://blogs.marketwatch.com/capitolreport/2017/09/20/fed-decision-and-janet-yellen-press-conference-live-blog-and-video-2/)
Some industry participants have been describing the asset
reduction as the "great unwind
(http://www.marketwatch.com/story/how-the-great-central-bank-unwind-could-ignite-the-next-financial-crisis-2017-09-20)"
and worrying that it might roil markets. "It is the start of
something unknown, it is going to start jitters. It is going to
make us tremble," said John Manley, chief equity strategist at
Wells Fargo Funds Management.
However, the Fed is aiming to offer as little disruption as
possible, he noted.
Several central-bank officials already wanted to start winding
down the Fed's portfolio of government securities in July, but the
majority wanted to hold until a later date. Traders now expect the
FOMC on Wednesday to reveal details on a balance-sheet reduction
(http://www.marketwatch.com/story/feds-balance-sheet-unwind-will-be-moment-of-truth-for-financial-markets-2017-09-18)
that could start as early as October.
In other economic news on Wednesday, a reading on existing-home
sales for August showed that sales dropped for the fourth time in
five months as real-estate agents continue to blame a lack of
available homes to buy. The National Association of Realtors said
existing home sales fell
(http://www.marketwatch.com/story/existing-home-sales-fall-in-august-for-the-fourth-time-in-five-months-2017-09-20)1.7%
to a seasonally adjusted rate of 5.35 million.
See:MarketWatch's economic calendar
(http://www.marketwatch.com/economy-politics/calendars/economic).
Stock movers: Shares of General Mills Inc.(GIS) slid 5% after
the food company, which brands include Cheerios, Haagen-Dazs and
Betty Crocker, missed profit and sales expectations
(http://www.marketwatch.com/story/general-mills-stock-tumbles-after-profit-and-sales-miss-2017-09-20).
Alnylam Pharmaceuticals Inc. (ALNY) soared 40% after positive
results in a late-stage trial
(http://www.marketwatch.com/story/sanofi-alnylam-report-positive-results-from-late-stage-trial-of-hattr-amyloidosis-treatment-2017-09-20).
Shares of American Outdoor Brands Corp.(AOBC) declined 3.6%,
despite reports late Tuesday that President Donald Trump will ease
rules on gun exports.
Bed Bath & Beyond Inc.(BBBY) slumped more than 14% ahead of
the bell after the retailer late on Tuesday released earnings that
widely missed forecasts
(http://www.marketwatch.com/story/bed-bath-beyond-earnings-miss-widely-stock-halted-2017-09-19).
FedEx Corp.(FDX) added 2.2% after the logistics company late
Tuesday reported earnings below forecasts
(http://www.marketwatch.com/story/fedex-shares-down-after-earnings-company-pins-miss-on-cyberattack-hurricane-harvey-2017-09-19),
saying the quarter offered "significantly operational challenges"
due to a cyberattack and Hurricane Harvey.
Microsoft Corp. (MSFT) slipped less than 0.8%, even as the
software major late Tuesday increased its dividend to 42 cents a
share
(http://www.marketwatch.com/story/microsoft-hikes-quarterly-dividend-announces-changes-to-board-of-directors-2017-09-19).
Other markets: Stocks in Europe were mostly higher, although the
U.K.'s FTSE 100 index
(http://www.marketwatch.com/story/ftse-100-edges-up-as-fed-decision-takes-center-stage-2017-09-20)underperformed
due to a rise in the pound. Sterling strengthened after U.K. retail
sales for August showed a bigger rise than expected
(http://www.marketwatch.com/story/uk-retail-sales-rise-faster-than-expected-2017-09-20).
Asian stocks closed mixed
(http://www.marketwatch.com/story/asian-markets-press-pause-ahead-of-fed-announcement-2017-09-19)
as traders there remained cautious ahead of the Fed call.
Crude-oil prices rose firmly
(http://www.marketwatch.com/story/crude-prices-rise-on-signs-of-drop-in-global-inventories-2017-09-20)
to $50.81 a barrel, while metals gained across the board, with gold
futures trading at around $1,305 an ounce, falling in electronic
trade after the Fed announcement.
(http://www.marketwatch.com/story/gold-prices-pause-losing-skid-as-fed-signals-awaited-2017-09-20)
(END) Dow Jones Newswires
September 20, 2017 14:40 ET (18:40 GMT)
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