Global Growth Concerns Linger After Fed Hike

Now that the dust has settled from Wednesday’s interest rate hike by the Fed, investors refocused on the prevailing headwinds for the global economy.  While the Fed’s decision added optimism about the health of the US economy, it did little to alleviate concerns stemming from a slowdown in China.  Oil, credit, and equity markets all continued their recent slide while Treasuries rallied 2-4 bps across the curve.  Volatility in equities was exacerbated by “quadruple witching”, when futures and options contracts on indexes and single stocks expire.

Overnight news abroad included the Bank of Japan tweaking its quantitative-easing program to increase ETF and REIT purchases, and extending the maturities on its bond purchases from 10 to 12 years.  The BoJ kept the size of its program unchanged at around 80 trillion yen per year.  Additionally, several foreign central banks followed the Federal Reserve in increasing interest rates after the FOMC announcement on Wednesday.  Mexico, Saudi Arabia, the United Arab Emirates, Kuwait, and Bahrain are among the countries whose central banks also raised rates. 

Richmond Fed President Lacker became the first Fed member to speak publicly since this week’s historic rate hike.  Lacker said the Fed’s decision is “a sign of the strength of the U.S. economy” and “a fundamentally positive reflection of how far we’ve come since the recession”.  Lacker also said each country has to set policy for its own economy and that he’s not concerned with the divergence of central bank policy.