Daily Market Color December 20, 2018Sell Off Continues After Fed Hike Fed Moves Rates Another Quarter Point, But Commentary Unnerves Markets The Federal Reserve raised rates by 25 basis points to the 2.25-2.50% Fed Funds range, making good on a rate hike that had been anticipated for months. While the 4th rate hike of 2018 was as expected, markets were disappointed to some extent that Fed Chair Jerome Powell’s comments didn’t more fully acknowledge current economic weakness. Rather than capitulate to wide-ranging investor pessimism, Powell noted that the Fed still expects a “robust economic backdrop” in 2019. He also said that the Fed expects to hike twice next year, albeit with the caveat that they will remain data-dependent. The risk-off mood pushed 10 year swap rates down to 2.78% -basically flat to 2 year swap rates. The Treasury curve also flattened, with the spread between 10 year and 2 year maturities falling to 11 basis points – the flattest point since before the financial crisis. Equity Markets React Negatively to Powell Comments Once more, US equity markets sold off on a Fed decision day- making Jerome Powell a perfect 7/7 to start his career as Fed Chair. Equities had risen a full 1.5% before Powell’s news conference pulled the S&P 500 down to 2507 (-1.5% on the day). Pundits largely blamed the move on Powell’s refusal to end further short term rate increases in the new year. Today’s sharp swings continued the elevated market volatility heading into year end.