Global stock index dips, dollar climbs as Fed's Powell holds off on Sept rate cut verdict
By Sinéad Carew and Samuel Indyk
NEW YORK/ LONDON (Reuters) -MSCI's global equities gauge stumbled on Wednesday while the U.S. dollar extended gains after Federal Reserve chair Powell dampened investor hopes for an interest rate cut in September, saying that it was too soon to make a decision and copper prices tumbled on hefty U.S. tariff announcements.
The Fed left interest rates unchanged at the end of its two-day policy meeting and noted moderating economic growth and the central bank gave little indication of when borrowing costs might be lowered. The decision to hold rates steady drew dissents from two of the U.S. central bank's governors, both appointees of U.S. President Donald Trump who has been constantly berating Powell for the lack of rate cuts.
The equity market reaction to the Fed's statement was muted. But stocks lost ground sharply as Powell said during a press conference that the Fed would decide on cut rates after it examines economic information in the run-up to its next gathering, in September.
“Markets wanted to hear that rate cuts were teed up for September, but received no indication of such from Powell. The President had usurped the Fed's forward guidance a little with his statements on where short term interest rates should be. Powell simply reminded markets that the FOMC sets the policy rate, not Congress and not the President, so markets needed to reprice the level of rates for the next few months,” said Jamie Cox, managing partner at Harris Financial Group.
On Wall Street the Dow Jones Industrial Average fell 171.71 points, or 0.38%, to 44,461.28, the S&P 500 fell 7.96 points, or 0.12%, to 6,362.90 and the Nasdaq Composite rose 31.38 points, or 0.15%, to 21,129.67.
MSCI's gauge of stocks across the globe fell 2.65 points, or 0.28%, to 933.15.
"As we expected, September is in play, but Powell walked back the probability of a September cut," said Tony Welch, chief investment officer at SignatureFD, adding that the Fed has two more inflation and employment reports to review before the meeting. "If inflation data moderates and growth softens, then we would expect a cut. If conditions match today – slower but positive growth and lingering inflation, then a rate cut is unlikely."
In currencies, the dollar advanced further as Powell spoke. The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 1.01% to 99.89.
The euro down 1.13% at $1.1416 while sterling weakened 0.78% to $1.3244 and the Canadian dollar weakened 0.52% versus the greenback to C$1.38 per dollar.
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