Resona International Management: Equity markets rallied strongly after minutes from the Fed’s last meeting reassured investors over interest rates.
Resona International Management: The Federal Reserve brought recent trepidation over the outlook for interest rates in the world’s largest economy to an end as investors responded favorably to the contents of the minutes of its last meeting.
According to the minutes of the meeting, members of the central bank’s Federal Open Markets Committee (FOMC) expressed concern over slowing global growth and the risks posed to the US economic recovery by the strength of the dollar.
“They’re claiming that the dollar’s strength is such that it could dampen growth at home by effectively making America’s exports more expensive abroad and also by exerting downward pressure on inflation which, according to official data, has been below the Fed’s target for 2 years,” opined a Resona International Management analyst
Investors took the dovish minutes as reassurance that the Fed would continue to hold fire on interest rate hikes and consequently drove equity prices higher. The Dow jumped over 1.5% to close out what had been a particularly unremarkable session up 275 points at 16994.
“This really brings home just how difficult the Fed is going to find it to extricate itself from the zero interest rate policy it’s pursued since 2008. Those FOMC minutes also show that the Fed will use any excuse at its disposal in order to keep interest rates low,” added the Resona International Management analyst.
“This is why we tell our clients that no matter how bullish things may appear in the media, they should be aware that without the Fed and low interest rates, the party comes to an abrupt end,” he concluded.
