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Today, the market reacted badly to the increase of rates from the Fed. The Dow fell 99.51 points, to close at 10,274.97. Also, both the Nasdaq and the S&P posted losses. The Nasdaq closed at 2,056.96, after falling 11.93 points. Meanwhile, the S&P closed at 1,191.33, after falling 8.52 points. This drop in the market was due to an expected boost in the Fed’s target for short-term interest rates, and signals that further hikes will exist later.

The Federal Reserve policy makers raised the benchmark U.S. interest rate a quarter of a point to 3.25 percent and restated a plan keep increasing rates at a “measured” pace. This decision suggests that central bankers are concerned that long term interest rates outside their direct control are still hurting the economy. Therefore, banks need to raise the overnight bank lending rate to decrease inflation. Today’s rate increase, which is the ninth straight, brought the Fed’s target to the highest since June 2001.

Bank of America Corp. agreed to buy MBNA Corp., which is the biggest credit card issuer, for $35 billion in cash and stock. As a consequence of this acquisition Bank of America would double its customer accounts to 40 million and have $143 billion in outstanding balances. After the news, shares of MBNA rallied 24 percent to close at $26.16 on the New York Stock Exchange. However, Bank of America’s shares fell $1.30, or 2.8 percent to close at $45.61.

The Labor Department reported that first-time filings for state unemployment benefits fell by 6,000 to a seasonally adjusted annual rate of 310,000 in the week ending June 25. Also, the Commerce Department announced that U.S consumer spending was flat in May as personal income growth slowed. Nevertheless, both results (which suggests a slowdown in the economy) were below economists’ expectations.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter