Banks were also among the biggest drags, after the financial sector jumped in the prior two sessions on news that the U.S. Federal Reserve had left the door open for an interest rate hike in December even as it indicated less aggressive credit tightening in 2017 and 2018. Laura Rosner, senior USA economist at BNP Paribas, says she expects a September hike, while Columbia Threadneedle Investments’ Gene Tannuzzo says that if he had to pick between a move this month or December, he’d take the former.
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Fed officials concluded that economic growth is improving after an anemic first half of the year, job gains are approaching an apex and inflation remains low.
Fed chair Janet Yellen, speaking after the central bank’s latest policy statement, said United States growth was looking stronger and rate increases would be needed to keep the economy from overheating and fuelling high inflation.
The Fed’s rock-bottom interest rate policy, aimed at stoking economic growth, hasn’t been easy on savers heading into retirement, whose earning years are mostly behind them.
According to the Fed funds futures, the outcome of the FOMC meeting had little effect on the chance of a December rate hike.
“The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives”, the Fed’s policy-making committee said in a statement released on Wednesday after its two-day meeting.
Here are five charts that help explain the news.
The FOMC is set to meet for two days beginning Tuesday, culminating in an announcement, forecasts and press conference from Fed Chair Janet Yellen on Wednesday afternoon. Eastern time. The Standard & Poor’s 500 index picked up 19 points, or 0.9 percent, to 2,159.
Investors were surprised earlier this month when Fed official Eric Rosengren, who has been reluctant to raise rates, suggested he might be willing to raise rates this month.
United States gold futures settled up 1 per cent at US$1,344.70. Probability of a rise at November’s Fed meeting was 23%, and in December 48% vs. 45%. Shares in BHP Billiton, Anglo American, Rio Tinto and Fresnillo were up 2.7 to 3.4 percent. The Nasdaq composite rose 47 points, or 0.9 percent, to 5,288.
I still think banks are unlikely to move much on deposit rates until we see another Fed rate hike.
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Nasdaq-traded companies with especially impressive gains included Amazon, up 1.2 percent, eBay, up 2.0 percent and Yahoo, up 3.2 percent. The yield on the 10-year Treasury note fell to 1.66 percent from 1.69 percent. It said it will continue trying to stimulate the Japanese economy until inflation is higher than 2 percent a year, but it didn’t reduce interest rates any further. Those in favor of a rate hike fear that a growing economy will stoke inflation which can overshoot inflation targets if left unchecked by artificially low rates. Still, the US economy has shown signs of sustained recovery and headline unemployment has fallen below 5% and stayed there.
