US markets gain on Fed comments

19 Jun 2014 Evaluate

The US markets closed higher on Wednesday, gaining the most in four weeks, after the Federal Reserve chief signaled no hurry to raise rates. In its latest dot-plot forecast, the Fed did see a slightly faster pace of tightening on the cards. As expected, the central bank trimmed bond purchases by another $10 billion, staying on track to end its long-running stimulus program before the end of the year. This is the fifth straight meeting with a $10 billion cut in the asset purchases. The Fed will now buy $35 billion a month in treasuries and mortgage-related assets, starting in July. Fed officials tweaked their forecast for interest rates at the end of 2015 from the bank’s 1% estimate in March. The Fed now sees the fed funds rate closer to 1.25% by then. At the same time, the Fed lowered its forecast for longer run interest rates to 3.75% from closer to 4%. The last change is important because it signals the central bank won’t push up interest rates all that high during this recovery phase. The only negative comment was that the housing sector remained slow.

Besides, Federal Reserve Chairwoman Janet Yellen was more dovish, sticking to her guns that the central bank can hold short-term interest rates steady until the middle of next year and then raise them gradually, and downplaying recent strong inflation readings. She was vague about when the Federal Reserve could first hike rates, saying there could be considerable time between when the bond taper ends and hikes begin. Yellen also added that Fed was not concerned about the stock market’s run to record highs.

On the economy front, the US current account deficit widened to $111.2 billion in the first quarter, or 2.6% of gross domestic product from $87.3 billion, or 2%, in the fourth quarter. The bigger deficit was accounted for by an increase in the deficit on goods and a smaller income surplus. The current-account deficit peaked at 6.5% of GDP at the end of 2005 and has tilted sharply lower since the end of the Great Recession.

The Dow Jones industrial Average gained 98.13 points or 0.58 percent to 16,906.62, the Nasdaq rose 25.61 points or 0.59 percent to 4,362.84 and the S&P 500 closed higher by 14.99 points or 0.77 percent to 1,956.98.

Indian ADRs closed mostly in green on Wednesday; Dr. Reddy’s Lab was up by 0.67%, ICICI Bank was up by 0.45%, HDFC Bank was up by 0.42% and Infosys was up 0.37%. On the other hand, Wipro was down by 0.14%.

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