Fed Stance Boosts Market
US stocks rallied Thursday morning as investors reacted to Wednesday’s Federal Open Market Committee (FOMC) meeting.
Thursday, December 18, 2014 - 00:00
The Fed expressed confidence that the US economy is recovering and that policy makers will take methodical steps toward an interest rate hike.
Additionally, the weekly unemployment claims report from the Labor Department was better than expected as jobless claims dropped by 6,000 to 289,000. This data reinforced the Fed’s view that the economy is strengthening.
As a result of the positive mindset, the S&P 500 added 1.1% at Thursday’s open. The Dow gained 1% and the Nasdaq rose 1.2%.
Key takeaways from the Fed meeting
Federal Reserve chairwoman Janet Yellen indicated that any kind of tightening would not come in a steady, deliberate pace like that of 2004 to 2006. Rather, the Fed’s moves would be entirely based on available data about the health of the economy. With that said, some analysts did not take Yellen’s comments as a sign of dovishness.
“We would speculate that the equity rally in the final hour of trading was more likely related to models-buying equities, as bonds sold off, than anything Chair Yellen said. She didn’t push normalization out – if anything, she opened a window to do it sooner,” said Michael O’Rourke, chief market strategist with Jones Trading.
Fed still nervous to abandon easy-money policy
While the FOMC did make progress toward a 2015 interest rate hike, it also exhibited anxiety in abandoning the stimulus-heavy policies it had leaned on since the global financial crisis. Still, the Fed made its most direct statement regarding raising rate in years, admitting it was “beginning to normalize the stance of monetary policy,” according to The Wall Street Journal.
Three Fed officials indicated dissent – all for different reason – during the meeting. One held that the rate increase would need to come sooner than planned, another questioned the Fed’s emphasis on low inflation risks and a third wished the Fed would stop offering timeline-based clues about rate plans.
By the end of 2016, 17 officials projected 13 different targets for interest rates. But 15 of 17 policy makers expected a short-term interest rate hike in the next 12 months.
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