June 19 - Summary: Stocks had their worst day in two weeks and benchmark debt yields hit a 15-month high after the Fed outlines a strategy to begin removing extra stimulus; FedEx beats forecast; Tesla issues recall. Conway G. Gittens reports.
An intraday chart of the Dow says it all: a late-day plunge coincides with realization the Fed is preparing for the day it starts pulling the Kool-Aid from the economic party. Stocks closed at the lows of the day, down over one percent, in the biggest sell-off in two weeks. The Federal Reserve is raising expectations for the economy, lowering its forecast for unemployment, and providing the clearest signal yet that it feels the economy is nearing the point, though not at that point yet, where policymakers can start to remove some of the extra stimulus put in place. Federal Reserve Chairman Ben Bernanke used a car analogy to explain: SOUNDBITE: FEDERAL RESERVE CHAIRMAN BEN BERNANKE (ENGLISH) SAYING: "If the incoming data support the view that the economy is able to sustain a reasonable cruising speed we will ease the pressure on the accelerator by gradually reducing the pace of purchases, however any need to consider applying the brakes by raising short-term rates is far from the future. In any case, no matter how conditions may evolve, the Federal Reserve remains committed to foster substantial improvement in the labor market in a context of price stability." Debt investors are already pricing-in higher rates, sending the yield on the 10-year note to a 15-month high. FedEx beat forecasts as it learns to cope with customers who prefer cheaper shipping methods. The package shipper is cutting costs and cutting jobs as a result. Tesla is issuing its first recall for its all-electric Model S. There's a defect in the mounting bracket of the rear seat and will cost Tesla about $150,000 to fix. Investors took the recall in stride - sending the stock up more than a full percent. European investors went home before the Fed announcement with stocks down between four-tenths and a half of one percent.