Equities fall, bond yields rise after hawkish Fed statement
By David Gaffen
NEW YORK (Reuters) - U.S. bond yields rose and stocks sold off after a U.S. Federal Reserve statement following its two-day policy meeting made it clear that the world's largest central bank still sees a December rate increase as a possibility.
The Fed kept U.S. rates at their long-term record lows, but what stood out in the statement was a specific reference to conditions necessary "to raise the target range at its next meeting." It said it will assess progress toward maximum employment and two percent inflation, same as its September statement, but the reference to a particular meeting is rare for the Fed.
Wall Street gave up most of its gains in the wake of the statement, while bond yields rose, particularly in the short end of the yield curve, in anticipation of tighter policy.
"The statement is as expected. We knew they weren’t raising but they had to move away from dovish statement that focused on China and Asia last time and grease the skids for a December increase," said Paul Schatz, president and chief investment officer at Heritage Capital in Woodbridge, Connecticut.
Markets currently see around a 47 percent chance it will raise rates this year, and the Fed has made it clear that the data will determine the policy. Still, markets took a more hawkish view of the Fed's statement.
The two-year Treasury note fell 5/32 of a point to boost its yield to 0.72 percent, its highest in a month. Five- and three-year yields also hit one-month highs. The dollar rallied more than 1 percent against the euro.
The Dow Jones industrial average .DJI rose 15.76 points, or 0.09 percent, to 17,597.19, the S&P 500 .SPX gained 3.05 points, or 0.15 percent, to 2,068.94 and the Nasdaq Composite .IXIC added 9.40 points, or 0.19 percent, to 5,039.54.
The dollar index .DXY was close to a 2-1/2-month high at 96.61 as the ECB's easing hints kept the euro pinned at $1.1080 and the yen barely budged at 120.50 yen to the dollar. (FRX: Quote) Continued...