Feds raise Interest Rates for banks: Stock futures down
The stock market headed for a lower open Friday after the Federal Reserve surprised investors by raising the interest rate it charges banks for emergency loans.
Markets around the world also fell as investors feared that the Fed’s move will raise borrowing costs and slow the economic recovery. It has been widely expected that the central bank would begin pulling back on its economic stimulus measures. But late Thursday’s quarter-point increase in the discount rate to 0.75 percent came sooner than expected.
The Fed said its action should not be seen as a sign that it will soon raise rates for consumers and businesses. But the stock market, which tends to trade on expectations for what the economy will be like in six to nine months, seems to be anticipating that rates will rise.
Asian stocks were down nearly 2 percent in earlier trading and the dollar, which is supported by higher interest rates, extended its advance. European markets were mixed.
Dow Jones industrial average futures fell 40, or 0.4 percent, to 10,335. Standard & Poor’s 500 index futures dropped 6.30, or 0.6 percent, to 1,099.30, while Nasdaq 100 index futures fell 6.25, or 0.3 percent, to 1,814.50.
Whether the Fed can move slowly on future rate increases may become clearer when the Labor Department releases its consumer price report later Friday morning.
Economists surveyed by Thomson Reuters expect the CPI, which measures inflation at the consumer level, rose 0.3 percent in January, faster than December’s 0.1 percent increase. They expect that core inflation, which excludes energy and food, will rise by a more moderate 0.1 percent in January, the same as in December.
A jump in inflation could put the Fed in a position of having to raise interest rates to fight the rising prices.
The report is expected at 8:30 a.m. EST.
Bond prices were mixed Friday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.80 percent from 3.81 percent late Thursday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.11 percent from 0.08 percent late.
The dollar rose against other major currencies. Gold and oil prices fell.
Overseas, Japan’s Nikkei stock average fell 2.1 percent. In afternoon trading, Britain’s FTSE 100 slipped less than 0.1 percent, Germany’s DAX index was down 0.1 percent, while France’s CAC-40 was up 0.3 percent.