US stocks are set to drop after the Fed's 'hawkish shift' tempers hopes for further rate cuts

Joshua Roberts/Reuters

Fed Chair Jerome Powell.

• US futures fell while European and Asian equities rose on Thursday after the Federal Reserve trimmed interest rates to counter slowing global growth and the US-China trade war.
• Fed Chair Jerome Powell cut the benchmark rate by 25 basis points to between 1.75% and 2%, but disappointed some investors by adding that "moderate" policy moves should be sufficient for now.
• "If the economy does turn down, then a more extensive sequence of rate cuts could be appropriate," Powell said.
• Oil rose to about $64 a barrel.
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US futures fell while European and Asian equities rose on Thursday after the Federal Reserve trimmed interest rates to counter a global economic slowdown and President Donald Trump's trade policy.

Fed Chair Jerome Powell cut the benchmark rate by 25 basis points to between 1.75% and 2%. "We took this step to help keep the US economy strong in the face of some notable developments and to provide insurance against ongoing risks," he said, highlighting lackluster global growth and the impact of the US-China trade war.

Powell tempered traders' hopes for further rate reductions

Powell said "moderate" policy moves should be sufficient for now. "If the economy does turn down, then a more extensive sequence of rate cuts could be appropriate," he added.

"A clear hawkish shift from the Fed presidents bummed Donald Trump and investors out," Ipek Ozkardeskaya, senior market analyst at London Capital Group, said in a research note.

Indeed, Powell's cautious rhetoric drew fresh criticism from Trump. "Jay Powell and the Federal Reserve Fail Again," he tweeted. "No 'guts,' no sense, no vision! A terrible communicator!"

The Fed also reduced the interest rate on excess reserves to 1.8% to ease pressure on borrowing costs, and said it could "resume organic growth of balance sheet," signaling asset purchases could be around the corner. The central bank's latest cut came hours after it injected $75 billion into markets to combat a liquidity crunch.

"The Fed is steering a tricky course," Neil Wilson, chief market analyst for Markets.com, said in a research note. "At the heart of the matter is the conundrum of full employment and steady inflation in the US versus the risks from trade wars and the deterioration in the global economy. And so we've got the Fed cutting now to fit the market narrative."

Meanwhile, US and Chinese trade negotiators are set to hold talks in Washington today for the first time in nearly two months, reigniting hopes of a trade deal.

Oil markets have been roiled by drone attacks on Saudi Arabian oil facilities that temporarily knocked out 50% of the nation's production capacity. The Abqaiq facility should fully recover by the end of this month, Saudi Aramco CEO Amin Nassar told Bloomberg.

However, the Kingdom has pointed the finger at Iran, prompting US President Donald Trump to threaten "some very significant sanctions" in the near future, fanning fears of regional disruption.

Here's the market roundup as of 9:50 a.m. in London (4:50 a.m. EST):

• European equities opened higher with Germany's DAX up 0.4%, Britain's FTSE 100 up 0.2=3%, and the Euro Stoxx 50 up 0.6%.
• US stocks were set to open lower. Futures underlying the Dow Jones Industrial Average and S&P 500 fell 0.2%, while Nasdaq futures slid 0.3%.
• Asian indexes closed mostly in the green. China's Shanghai Composite climbed 0.5% and Japan's Nikkei rose 0.4%, while Hong Kong's Hang Seng dropped 1.1%.
• Oil prices climbed with West Texas Intermediate crude up 0.5% at $58.30, and Brent crude up 0.7% at about $64.
• Gold slid 0.7% to about $1,505 an ounce.