Major U.S. index futures are pointing to a lower opening on Thursday following the mixed performance seen in the previous session.
The downward momentum on Wall Street comes as traders continue to digest the Federal Reserve’s decision to raise interest rates by a quarter point on Wednesday.
Stocks showed a lack of direction throughout much of the trading session on Wednesday before ending the session mixed. The narrow Dow climbed to a new record closing high.
The Dow rose 46.09 points or 0.2 percent to 21,374.56, while the Nasdaq fell 25.48 points or 0.4 percent to 6,194.89 and the S&P 500 edged down 2.43 points or 0.1 percent to 2,437.92.
The mixed closed on Wall Street came after the Federal Reserve raised its benchmark interest rate for the third time in three months despite signs the U.S. economy has cooled off in 2017.
The Federal Open Market Committee voted to raise fed funds to between 1% and 1.25% and will start “gradual” shrinking of its $4.5 trillion balance sheet “this year.”
The Fed, tasked with promoting full employment and healthy inflation, was forced to deal with an unusual dilemma — the unemployment rate has dropped to its lowest in 16 years, but inflation has weakened below the Fed’s 2 percent target rate.
Their so-called ‘dot plot’ shows one more rate hike in 2017 and three more in 2018, but the Fed’s accompanying statement offered little indication they plan to raise interest rates again this summer.
Policy makers say they are “monitoring developments closely,” meaning they are likely wait for confirmation that recent economic weakness is “transitory.”
“Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year,” the Fed said.
However, in a nod to May’s lackluster jobs report, the statement noted “Job gains have moderated but have been solid, on average, since the beginning of the year.” Also, U.S. retail sales in May were the weakest in 16 months, data showed this morning.
Meanwhile, the rate of inflation over the past 12 months has slowed to 1.9% in May from 2.7% just in February.
In her accompanying press conference, Fed Chair Janet Yellen offered some explanation for the tame inflation, noting declines in a few areas, such as cell phone service and prescription drugs.
Yellen said the Fed still expects inflation to reach the 2% target next year, and the economy is expected to grow at the same pace of around 2% for the next three years.
As such, the Fed expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated.
On the U.S. economic front, the Commerce Department released a report this morning showing an unexpected drop in retail sales in the month of May.
The Commerce Department said retail sales fell by 0.3 percent in May after climbing by an upwardly revised 0.4 percent in April.
The drop in sales surprised economists, who had expected sales to inch up by 0.1 percent compared to the 0.3 percent increase originally reported for the previous month.
Excluding auto sales, retail sales still fell by 0.3 percent in May following the 0.4 percent growth seen in April. Ex-auto sales were expected to rise by 0.2 percent.
A separate report from the Labor Department showed a modest decrease in consumer prices in May amid a steep drop in energy prices.
The report said the consumer price index edged down by 0.1 percent in May after rising by 0.2 percent in April. Economists had expected prices to come in unchanged.
Energy stocks moved sharply lower amid a drop by the price of crude oil, while strength was visible among tobacco and biotechnology stocks.
Adedapo Adesanya