Fed does nothing; stocks respond in kind

Fed does nothing; stocks respond in kind

Global stock markets had dipped since Friday ahead of today's Fed rate decision. With the Fed opting not to raise rates, stocks were little changed. The dollar and gold were also quiet, but crude oil rallied to reverse recent losses. 

Gold bullion at the Federal Reserve bank |
Gold bullion at the Federal Reserve bank | Getty Images

The first meeting of the Federal Open Market Committee since the inauguration of Pres. Trump ended with a modestly optimistic statement about the economy inherited by the new administration, but no change in the Fed Funds rate. Fed Chair Janet Yellen did not hold a press conference after the meeting. The FOMC next meets on March 14-15.

Chair Yellen will have an opportunity to explain the Fed decision and comment further during her semiannual monetary-policy testimony to Congress in mid-February. In December 2016, when the Fed raised rates by a quarter percentage point for only the second time since the end of quantitative easing, the members also signaled that they may raise rates in 2017 as many as three times. 

They had, they admitted, planned on raising rates more times in 2016, but held off due to various global and domestic uncertainties. Now that the election and Brexit are done deals, the Fed may be ready to move forward with those plans, just not this month. 

The economy continued its steady climb towards fulfilling the Fed's two main requirements. The Fed's monetary policy is intended to achieve two specific mandates: to encourage job (and some say, wage) growth, and keep inflation at a manageable level, neither too high nor too low. In recessions, prices drop because people stop spending and demand for goods and services drops. That's why inflation was near zero in the years of recovery from the Great Recession of 2008. 

Inflation is now at a more healthy 1.7%, using the measure of price growth most often cited by the Fed. The central bank's stated target is a full and sustained two percent inflation rate. The Fed continued to express optimism that the US economy is headed in that direction. 

On the other mandate, employment, the news could not be better. The unemployment rate remains at 4.7%, a number that is actually lower than what many economists call "full employment," or the employment of everyone except the average number of people who are likely to be switching jobs at any given time. Most economists estimate that about 5% of the US working population is job-hunting at a given moment. 

With nonfarm employers adding an average of 200,000 new jobs a month since June and the Obama presidential term having produced 82 total months of net job creation, the bank is satisfied that the current employment situation is healthy. 

However, they continue to be concerned about wage growth. The median income for all but the wealthiest Americans is stagnant or worse, a long-term challenge that will require fiscal as well as monetary policy. The positive consumer sentiment and promises by the new administration of major infrastructure spending are all positives on that front. 

With little in the Fed statement to react to, stocks were barely changed. The S&P 500 rose less than a point to close at 2,279.42, That ended a four-day losing streak, but didn't do much more. The biggest news was a surge in Apple stock prices after the iPhone maker reported better-than-expected earnings for the last quarter. The dollar and gold both rose slightly. 

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