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FED ASSESSMENT OF US ECONOMY GIVES CONFIDENCE

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FED ASSESSMENT OF US ECONOMY GIVES CONFIDENCE

Dec 18 2014, 10.58am GMT

STOCK.com

USA500 went up more than 45 points on the upbeat FED economic assessment, with more gains today.

After 3 days of loss, the USA500 [S&P500] pushed to 2010 yesterday, today making more gains to achieve 2032. Following a two day meeting, the announcements made from the FED last night provided confidence in the markets alongside strong economic data in the domestic markets and against weak overseas growth.

As analysts note from the FED announcement, the Reserve shifted its language over rising rates to "patient", stating, “Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.” This was due to the fact that, “Information received since the Federal Open Market Committee met in October suggests that economic activity is expanding at a moderate pace.”

Providing a glimpse of the future, the statement released noted, “The Committee expects inflation to rise gradually toward 2 percent as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate. The Committee continues to monitor inflation developments closely.” However in the conference, Janet Yellen pointed out that the ‘few meetings’ schedule for raising rates meant that they would maintain the rate for at least the next two meetings of the FED.

Data released yesterday also boosted confidence in the US economy as the Fed Funds Target Rate remained at 0.25% versus the same expectations. The FED decision on patience towards raising the interest rates allowed the Fed Funds Target Rate to stay at 0.25% versus expectations of the same.

Meanwhile, US consumer prices were down: Core CPI (MoM) (Nov) reached 0.1% as expected against previous of 0.2%, whilst Real Earnings (MoM) (Nov) stepped up to 0.9%, beyond expectations of 0.4% and previous of 0.1%.

The FED used these key economic indicators to reflect on their interest rate policy, saying, “When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”

Political Economist Marc Chandler reflected on the FED announcement saying, “There are three reasons why we think the Federal Reserve will raise rates next year. First, by the middle of next year, barring a significant surprise, the Fed will be closer to its mandates. Remember that the Fed has three mandates:  price stability, full employment and financial stability.  It will be closer to full employment in six to nine months. Financial stability may be threatened by continued near zero short-term interest rates.” He also noted, “The Fed's leadership has continued to signal the likelihood the first hike around the middle of 2015. It is signaling investors and countries prepare themselves accordingly.”

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