US stocks tumble ahead of Fed meeting

<p>Traders are looking for signs of an interest rate hike.</p>

US stocks tumbled this morning (March 17th) as investors await the start of the US Federal Reserve two-day meeting on interest rate policy. They are looking for clues as to when the central bank will start raising interest rates, which stand near zero since the 2008 financial crisis.

Markets expect that the Fed will drop a promise to be patient before raising interest rates, paving the way for a June increase. However, weak US economic data released yesterday led some analysts to expect an increase later in the year.

The Dow Jones industrial average was down 0.9 per cent and the Standard & Poor's 500 index fell 0.5 per cent this morning. The Nasdaq composite index lost 0.3 per cent.

"The biggest source of uncertainty at the moment is what will happen with the US and rates liftoff, given the country is faced with a different set of fundamentals to the rest of the world," IG strategist Stan Shamu told AP.

Employment figures beat expectations

US non-farm payrolls – released early in March – showed that the US added 295,000 jobs in February, beating forecasts of a 235,000 increase, despite severe winter weather. 

The unemployment rate fell by two tenths of a percentage to 5.5 per cent, from 5.7 per cent in January, compared to estimates of 5.6 per cent.

The Fed has held interest rates close to zero for more than six years in a bid to revive the US economy after the financial crisis.

US Federal Reserve Chair Janet Yellen's said at the end of February that the central bank would be patient about raising interest rates, as the job market is still healing and inflation is too low. 

She added that that the Fed is preparing to consider increases "on a meeting-by-meeting basis", and that she and her colleagues would provide markets with a clearer signals before they moved.

In another statement released late last year, she declared that the decisions that the committee makes about what is the appropriate time to begin to raise its target for the federal funds rate will be data dependent.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.