The Federal Reserve's decision to raise its so-called discount rate by 0.25 percentage points Thursday sent shockwaves through global markets overnight and pushed U.S. stock futures down sharply in early Friday trading.
As of 6:15 a.m. in New York, the Dow Jones Industrial Average futures slipped 61 points, or 0.59%, to 10314, the S&P 500 futures fell 8.6 points to 1097.00 and the Nasdaq 100 futures fell 9.75 points to 1811.00.
While the Fed and its Chairman Ben Bernanke have signaled repeatedly the bank was considering paring back some of the emergency programs and easy lending policies that it instituted during the financial crisis, the raising of the the discount rate was the first explicit move by the Fed.
"While the timing is somewhat of a surprise, the fact that it occurred is not," said Dan Greenhaus, chief economic strategist with Miller Tabak, in a note to clients.
The discount rate, also known as the rate of last resort for banks, historically was one percentage point higher than the Fed's main monetary tool the federal-funds rate. While several economists said in notes that the move was not a surprise, markets took the action as a shot across the bow that the Fed is ready to start hiking in rates in coming months.
"It is the first step toward normalizing the spread between the discount rate and the [federal-funds rate]," said Bruce Kasman, an economist with JPMorgan Chase & Co., in a note.
European and Asian markets sold off broadly and the dollar rallied against the euro, yen and British pound. Oil fell 1.3% to $78.03 a barrel while gold slipped 0.8% to $1,109.70 a troy ounce.
Fed fund futures, securities that bet on which way the central bank will move interest rates, priced in a 50% chance the Fed could rate rates to 0.5% in the next six months.
Financial industry companies, historically the most susceptible to higher interest rates because it effects their cost of doing business, were all indicated lower. Among the names, Bank of America (BAC: 15.87, 0, 0%) was down 2%, Goldman Sachs (GS: 155.68, n.a., n.a.%) fell 1% and Morgan Stanley (MS: 27.25, 0, 0%) fell 1.3%.
While the Fed's decision is expected to dominate Friday's session, Wall Street will get January's consumer price index at 8:30 a.m. ET. Economists expect the CPI rose by 0.3% compared with the 0.1% rise in December.
