US stocks tumble ahead of Fed meeting

Traders are looking for signs of an interest rate hike.

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By :  ,  Financial Analyst

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.

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