While you were sleeping: Stocks, greenback rise on Fed

Thursday 18th September 2014

Wall Street advanced, as did the US dollar, after Federal Reserve policy makers kept their pledge to maintain interest rates near zero for a “considerable time” after the end of its monthly bond-buying program.

"'Considerable time' sounds like it is a calendar concept, but it is highly conditional and it is linked to the committee's assessment of the economy," Fed Chair Janet Yellen said at a press conference. “There is no fixed mechanical interpretation of a time period.”

Still, policy makers lifted their federal funds rate predictions, raising the median estimate to 1.375 percent at the end of 2015, compared with a June forecast of 1.125 percent.

“On balance, labour market conditions improved somewhat further; however, the unemployment rate is little changed and a range of labour market indicators suggests that there remains significant underutilisation of labour resources,” the Federal Open Market Committee said in a statement. “A highly accommodative stance of monetary policy remains appropriate.”

“It likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends,” according to the Fed.

Policy makers downgraded their monthly bond-buying by US$10 billion to US$15 billion, remaining on track to end the program next month.

"While the much analysed phrase 'considerable time' remained in the FOMC statement, the newly announced scheme for interest rate normalisation shows that higher rates are in the cards," John Kilduff, a partner at Again Capital in New York, told Reuters.

The Fed said it expects the US economy to grow at a rate between 2 percent and 2.2 percent in 2014, between 2.6 percent and 3 percent in 2015, between 2.6 percent and 2.9 percent in 2016 and between 2.3 percent and 2.5 percent in 2017. Its forecasts for 2014, 2015, and 2016 were all marginally downgraded from its June estimates.

In late afternoon trading in New York, the Dow Jones Industrial Average rose 0.24 percent, the Standard & Poor’s 500 Index added 0.35 percent and the Nasdaq Composite Index gained 0.44 percent. Earlier in the day, the Dow climbed to a record high 17,221.11.

Gains in shares of DuPont and those of Home Depot, up 4.8 percent and 1 percent respectively, led the advance in the Dow. DuPont gained after activist investor Nelson Peltz’s Trian Fund Management called for a breakup of the company, saying “the reason for DuPont’s persistent underperformance is very simple: DuPont’s conglomerate structure is destroying value.”

Shares of FedEx climbed, last up 3.3 percent, after the company posted quarterly earnings that surpassed expectations.

There was upbeat news on the US housing market, with builder confidence as measured by the National Association of Home Builders/Wells Fargo this month rising to the highest level since November 2005. The housing market index rose to 59, from 55 in August.

In Europe, the Stoxx 600 finished the day with a 0.5 percent increase from the previous close, as did France’s CAC 40. Germany’s DAX rose 0.3 percent. The UK’s FTSE 100 Index fell 0.2 percent.

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