Why the Federal Reserve may have just killed the stock market rally

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US stocks have posted solid gains this year with the three major indexes up at least 10 percent so far, in large part because the Fed said in January it would be "patient" in raising rates.

That difference matters. If at some stage in the future the Fed thinks the economy is overheating it will raise rates.

So it's no surprise stocks finished Wednesday with a downward bias following Federal Reserve Chairman Jerome Powell's well-polished presentation to headline-seeking journalists Wednesday afternoon.

The committee members forecast a median federal funds rate this year of 2.4 percent - the current level - down from the 2.9 percent forecast in December, and 3.1 percent in September.

One indicator of this economic slow down has been the housing market. Powell is expected to note that while the US economy is on firm footing, it faces risks from slowing growth and trade conflicts.

But from October, it will no longer reduce its Treasury holdings, while continuing to run-off US$20 billion a month of MBS, the Fed said in a separate statement.

A gauge of stocks across the world fell on Wednesday as a boost from a dovish Federal Reserve was not enough to offset concerns over economic growth and US-China trade talks.

Among other precious metals, spot palladium rose 0.1 percent to $1,604.30 per ounce, after touching an all-time high of $1,620.53 earlier in the session.

Borrowers who were anxious about further increases in interest rates this year should feel some relief that is now less likely to happen.

EUR/USD pulls back from a fresh monthly-high (1.1448) even though the Federal Reserve adjusts the forward-guidance for monetary policy, and the euro-dollar exchange rate may continue to consolidate over the coming days as it snaps the series of higher highs & lows from earlier this week.

The decision to halt rate hikes will likely please President Trump, who, following the Fed's December announcement, lambasted Chairman Jerome Powell for threatening the bull market he's enjoyed since taking office.

"The Fed does not want to get into the business of predicting the outcome of political decisions, at least publicly, but the removal of both 2019 dots suggests to us that they are much more anxious about external risks than we believe is justifiable as a base case", Pantheon Macroeconomics Chief Economist Ian Shepherdson explains.

The Fed raised interest rates four times in 2018 and has hiked a total of eight times since the end of 2015, citing mounting inflation pressures in the economy that require tighter monetary policy in order for them to be brought under control.

The Fed also downgraded its economic forecasts, predicting that unemployment would rise slightly this year and inflation and economic growth would weaken.

That's why emerging market currencies were crushed a year ago and global stock markets have been so volatile, because high interest rates have seen investors hearded toward the Dollar.

It has been reducing its a $4.2trn portfolio of US Treasury bonds and mortgage-backed securities since 2017.

Powell also said Wednesday he did not see major risks to the financial system that could lead to another financial crisis.

Equity and debt markets rallied on the news.

With central banks having already cut rates to the bone and tried full-scale money printing, investors are concerned that many are now low on traditional ammunition to fight recessions.