Wall Street preserves gains after FOMC ramps up rate hike expectations

Major equity indexes in the U.S. lost traction after the FOMC statement showed that policymakers were seeing another rate hike before year-end appropriate, but were able to pare their losses to close the day modestly higher.

As anticipated, the Fed decided to leave the interest rates unchanged and announced that it would start trimming its $4.2 trillion balance sheet by starting off with a $10 billion reduction on a monthly basis from October. The updated economic projections report revealed that 11 of 16 policymakers were in favor of having the central bank’s benchmark interest rate in a range between 1.25% and 1.5% by the end of 2017. In fact, the probability of a 25 basis points hike in December jumped above 70% according to CME Group FedWatch Tool. 

Commenting on today's decisions, ”If you want to build the case for why this is hawkish, the path you can go down was that they were dismissive of hurricane impacts, basically saying that it’s going to inflict hardship but net-net it’s going to levy a modest negative impact. Maybe the reality is starting to sink in for the market that they really do want to go in December,” Tom Porcelli, chief U.S. economist, RBC Capital Markets, New York, told Reuters.

The S&P 500 Financials Index Sector gained 0.6% on the day as higher rates are seen as a factor that could increase the profitability of banks. On the other hand, rate-sensitive utilities came under pressure with the SPLRCU index dropping nearly 0.8%.

After losing nearly 50 points, the Dow Jones Industrial Average closed 44.2 points, or 0.2%, higher at 22,323.78. The S&P 500 was virtually unchanged, and the Nasdaq Composite lost 5 points to end at 6,456.04 points. 

Headlines from the NA session:

• Plotting the dots: Fed generally more upbeat - ANZ
• FOMC is still aiming for a third hike before the end of the year - Rabobank
• Fed tells markets they're too complacent about hikes - ING
• DXY +92%: shorts repositioning in a major way on bullish Yellen / hawkish FOMC
• Yellen Speech: Gradual rate hikes are still warranted
• Yellen Speech: In third quarter economic growth to be pulled down by hurricanes
• CME Group FedWatch's December hike probability jumped above 70%
• FOMC's updated economic projections - Sep 20, 2017
• FOMC's decisions regarding monetary policy implementation - Sep 20, 2017
• US Existing Home Sales decline amid low inventories and hurricanes - Wells Fargo
• FOMC statements: Comparison between July and September