The markets were shaken Mar. 19 by the first meeting of the Federal Open Market Committee (FOMC) chaired by Janet Yellen. Each of the major indices was hovering around even at 2pm EST when Yellen was scheduled to report the committee’s decisions, and they plunged immediately afterwards. That initial sell-off was followed by a slight rebound then an even steeper decline almost exactly an hour later.
The S&P 500 was sitting just under 1,875 before nose-diving about 10 point at 2pm. The index bounced at about 1,865 and recovered to almost 1,870, but stocks turned south again, this time falling much farther. The index went from about 1,867 to just over 1,850 in a matter of minutes just after 3 pm EST. The sharp fall was, once again, followed by another hard bounce that carried it back up to 1,860, but the index was still posting losses in excess of 0.6 percent on the day.
The price action for the Dow Jones Industrial Average (DJIA) and Nasdaq Composite followed similar patterns. The action was curious given that most of the announcement was entirely in line with expectation. The FOMC voted 8-1 to reduce its monthly bond-buying program by an additional $10 billion to $55 billion, in line with the plan laid out when the tapering of quantitative easing was announced.
Yellen did also reveal that the committee had reduced the upper end of its estimate for growth in 2014, revising December estimates for GDP growth of 2.8-3.2 percent to 2.8-3 percent. However, the Fed also revised its estimates for the unemployment rate at the end of 2014 from 6.3 percent to 6.1 percent, and Yellen strongly implied that the low-interest-rate environment should continue for the foreseeable future.
"The statement now adds the committee's current anticipation: that even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping short-term interest rates below levels the committee views as normal in the longer run," said Yellen at the press conference.
The steep sell-off at 3 PM, immediately following Janet Yellen’s press conference, would seem to imply that traders saw something in that press conference that they didn’t like. However, it’s also just as likely that the price moves were just noise. The total shift in the major indices remained low enough to lack any serious ramifications, and the coming weeks and months should say much more about the markets’ reaction to this news than today’s swings.
This would be particularly true if data continued to show that some of the dreary economic figures from this winter were related specifically to the harsh winter weather.
"Unusually harsh weather in January and February has made assessing the underlying strength of the economy especially challenging,” said Yellen. “Broadly speaking, however, the spending and production data, while somewhat weaker than we had expected in January, are roughly in line with our expectations as of December, the last time committee participants submitted economic projections."