Fed Leaves Rates Unchanged, Dow and S&P Close Lower

March 20, 2019

By Chloe Aiello

The Federal Reserve announced on Wednesday it would leave interest rates unchanged, and indicated it anticipates the unwinding of its balance sheet will conclude in September.

In a statement, the Federal Open Market Committee cited slowing in economic growth rates since last quarter as a reason for its decision, but added that labor markets remain strong ー even in spite of February's jobs report, which was the weakest in months.

"The federal funds rate is now in the broad range of estimates of neutral ー the rate that neither tends to stimulate nor to restrain the economy. My colleagues and I think that this setting is well-suited to the current outlook and we believe we should be patient in assessing the need for any change in the stance of policy," Fed Chair Jerome Powell said during a press conference.

Powell's language mirrors comments he made in January, when he said the Fed "will be patient as we watch to see how the economy evolves."

The Fed's perspective has changed since last year when it said that two rate hikes were anticipated in 2019. That announcement was followed by severe market volatility at the end of 2018, plus heightened concern about trade relations with China ー both of which raised concerns about the strength of the economic outlook in 2019.

Adam Johnson, founder and author of Bullseye Brief, said Powell's changing views on the future of the economy indicate "he's confused and I think that's why the market was down today, seriously."

"Pendulums swing one way and then they swing way too far to the other. Look at the negativity back in December. Everybody thought we were going to have a recession, and now nobody says recession," Johnson added.

Frank Sorrentino, CEO of ConnectOne Bank, said the neutral range position is important because it also leaves the Fed with the option of decreasing rates if there is an economic slowdown. "I think the Fed has a lot of bullets in its vest which it did not have leading up to this," he said.

Powell also indicated the Fed will likely stop offloading bonds from its balance sheet by September.

"The fact that they are saying they are not going to go past September means we are probably going to be in a lower rate environment," Sorrentino said. "I think they are looking to be a little bit more accommodative to the economy today than they were in the past."

The tech-heavy Cheddar 50 Index, which measures the performance of Cheddar's 50 top companies ー from Apple ($AAPL) to Salesforce ($CRM) ー closed up 2.7 percent following the announcement. Twitter ($TWTR) and Snap ($SNAP) were the top performers of the index, both up more than 4 percent. Tencent Music ($TME) was the index's worst performer, tumbling more than 10 percent after it disappointed Wall Street with its first earnings report since its December debut.

The Dow Industrials closed down 0.55 percent or 142 points. The S&P 500 dropped 0.29 percent and the Nasdaq closed out the day up slightly.