News Analysis: Wall Street faces more volatility after Fed announcement

The U.S. Federal Reserve sent markets spinning on a new round of rate hike speculations Wednesday after the central bank left rates unchanged. Many analysts believe volatility could rise in financial markets hereafter.

The Fed kept its benchmark short-term interest rates unchanged on Wednesday as widely expected, noting that "global economic and financial developments continue to pose risks" to the U.S. economy.

Stephen Guilfoyle, managing director at Deep Value, told Xinhua Wednesday that he expected more volatility in financial markets worldwide after the Fed statement.

"You will see more volatility in U.S. markets, Chinese markets, (and) European markets," Guilfoyle said.

As Wall Street is increasingly in step with the world economy, a global slowdown since the start of the year also raised concerns about the strength of U.S. economy.

"I am wary and have not yet concluded that we have seen a significant uptick that will be lasting," said Fed Chair Janet Yellen, at a press conference following the two-day policy meeting.

Keith Bliss, senior vice president at Cuttone & Co., told Xinhua earlier that "U.S. economic growth will still be in the 2 percent range - in a rising interest rate environment, the global economy will be anemic, and the dollar will still be stronger as monetary policy in the U.S. diverges from policy overseas."

Many analysts agreed that the stock markets would witness more volatility in the coming months, as Wall Street speculates on the Fed's next move.

"The Fed shifted from a dot plot suggesting 4 rate hikes this year to one suggesting 2. It will take a while for markets to settle on what the new dots mean," said Chris Low, chief economist at FTN Financial, on Wednesday.

The Fed's updated projections released Wednesday showed that policymakers expected the federal funds rate to rise to around 0.9 percent at the end of 2016, implying two quarter-percentage-point rate increases this year, down from four estimated in December.

U.S. stocks rallied Wednesday after the Fed officials suggested rates could raise less this year than they previously expected.

The Dow Jones Industrial Average rose 74.23 points, or 0.43 percent, to 17,325.76. The S&P 500 added 11.29 points, or 0.56 percent, to 2,027.22. The Nasdaq Composite Index increased 35.30 points, or 0.75 percent, to 4,763.97.

The CBOE Volatility Index, often referred to as Wall Street's fear gauge, dropped 10.99 percent to end at 14.99 on Wednesday.

Some analysts believe the Federal Open Market Committee (FOMC) would probably raise interest rate at their June policy meeting, while others feel the Fed should hike rates very soon.

"June is what most of the guys are saying," said Guilfoyle, "but I would like to say it is April."

Meanwhile, a newly-released main gauge of inflation further bolstered the case for the Fed to raise rates later this year.

The Consumer Price Index (CPI) for all urban consumers declined 0.2 percent in February on a seasonally adjusted basis, on par with market estimates, reported the U.S. Labor Department Wednesday.

However, the index for all items less food and energy, the so-called core prices, rose 2.3 percent in February from a year ago, the strongest 12-month increase since May 2012.

"On one hand, a less aggressive Fed means higher inflation. On the other hand, the Fed is telling us they are no longer as concerned about inflation as in December," Low added.

The U.S. central bank announced last December to raise benchmark interest rate by 25 basis points, the first rate hike since 2006 which marked the end of an era of extraordinary easing monetary policies. Endit