Wall Street powers world stocks; dollar up on Brexit woes

Jerome Powell chairman of the U.S. Federal Reserve

The Fed policymakers, emerging from a two-day meeting, also projected that the USA economy would grow more slowly this year and next, a change from the panel's projections just three months ago. Not only did the Fed maintain its interest rate patience and more cautious approach to unwinding its enormous balance sheet, but it slashed its USA growth forecasts for 2019 and 2020.

The Fed's forecast for economic growth this year is well below what the Trump administration is projecting. The FOMC's so-called dot plot projections in December indicated most Fed officials expected they'd be able to justify at least two rate hikes before the end of 2019, with at least one more in 2020.

It goes nearly without saying the Fed left its interest rate unchanged at the previous range of between 2.25% and 2.5% on Wednesday, in line with market expectations, which means it was the content of the accompanying statement and projection materials that were alway going to be most important.

Bank stocks fell broadly along with rates, with the S&P 500 financials sector down more than 2 percent, weighing on the market.

Banks led US stocks mostly lower Wednesday after a brief rally sparked by the Federal Reserve's latest policy update faded.

The rate is used as a key for determining interest on most adjustable-rate consumer debt, such as credit cards and mortgages, and has a direct effect on central bank monetary policy around the world, including in the UAE and most GCC countries, where interest rate changes are dependent on the Fed as most Gulf currencies are pegged to the United States dollar. They've also acted as a headwind for economic growth and seen the value of shares automatically marked down.

But the hint that we should no longer think in terms of any rise at all this year and only one in 2020 is consistent with the picture of a softening economic outlook.

Traders are looking ahead to the latest interest rate policy decision Wednesday from the Federal Reserve.

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Growth in Europe and China has weakened and there are conflicting signs about how the US economy is doing.

Still, he said, there are ongoing risks, including those related to Britain's exit from the European Union, U.S. trade talks with China, and even the outlook for the U.S. economy, which he said the Fed is watching closely.

The Fed also said that is will slow the monthly reduction of US Treasury bonds it holds from $30bn to $15bn from May onwards ending in September. "It's a great time for us to be patient". "While the USA economy showed little evidence of a slowdown in 2018, the limited data we have so far this year have been somewhat more mixed".

"The focus shifted back to Brexit and the potential downside that a "no deal" would create", said Minh Trang, senior currency trader at California's Silicon Valley Bank. The exact mix will matter a great deal down the road, given that the Fed opted this week to sacrifice policy flexibility for 2019 in favor of giving bullish investors exactly what they desired.

That view is supported by the CME Group, which tracks trading in futures contracts on the Fed's benchmark rate. Private economists generally agree that a slowing economy and a sinking stock market, which eased Fed worries about any possible stock bubble, were more decisive factors.

Inflation for the year is now seen at 1.8 percent, compared to the December forecast of 1.9 percent.

The Fed said that "the labor market remains strong but that growth of economic activity has slowed from its solid rate in the fourth quarter". The Fed emphasized that recent indicators point to slower growth for household spending and business fixed investment, but otherwise the language was essentially the same.

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