US markets gain on dovish Fed remarks

18 Dec 2014 Evaluate

The US markets closed higher on Wednesday; shrugging off falling-oil worries and global deflationary concerns, after the Federal Reserve conveyed a more dovish posture at the conclusion of its two-day meeting. The Federal Reserve dropped its promise to keep interest rates close to zero for a considerable time, a sign the bank is moving closer to tightening monetary policy for the first time in eight years after an unprecedented attempt to stimulate the US economy. In a new twist, the Fed added fresh language to its statement saying the US central bank can be patient before it begins to raise rates. The slightly altered language shows the Fed is still prepared to raise short-term interest rates by the middle of 2015 and perhaps even sooner, especially if the economy continues a strong run that has generated the most new jobs since 1999 and pushed the unemployment rate down to the lowest level in six years. In keeping with its cautious approach, the Fed once again stressed the timing of its first rate hike since 2006 will depend on the economy maintaining its recent momentum, with any backsliding likely to push a rate increase back even further. During the press conference, Fed chairwoman Janet Yellen sounded upbeat on the economy but noted that there was room for improvement. She stated that inflation is running below the Fed’s 2% target inflation rate but expects to see normalization. She also suggested that the recent slump in oil may be fleeting, referring to crude oil price moves as possibly transitory.

On the economy front, US consumer prices fell in November by the largest amount in six years, a bonanza stemming from plunging oil prices that also boosted inflation-adjusted worker pay. The consumer price index declined by a seasonally adjusted 0.3% in November, the largest drop since December 2008. The core CPI, which excludes volatile food and energy costs, last month increased by 0.1%. Housing and medical care expenses both rose. Consumer prices have risen an unadjusted 1.3% over the past 12 months, down from 1.7% in the prior month and as high as 2.1% in June. The US current account deficit widened slightly to $100.3 billion in the third quarter from a revised $98.4 billion in the prior period. The increase stemmed from a bigger gap in secondary income and a lower surplus in services. Yet the trade deficit in goods fell to $182.1 billion in the third quarter from $189.3 billion in the second quarter. The deficit as a percentage of gross domestic product remained at 2.3%. It’s down sharply from the peak of 6.5% of GDP at the end of 2005.

The Dow Jones Industrial Average added 288.00 points or 1.69 percent to 17,356.87, Nasdaq was up by 96.48 points or 2.12 percent to 4,644.31, while S&P 500 gained 40.15 points or 2.04 percent to 2,012.89.

Indian ADRs closed in green on Wednesday; Dr. Reddy’s Lab was up 1.17%, HDFC Bank was up 1.13%, Tata Motors was up by 0.52%, Infosys was up by 0.35% and ICICI Bank was up 0.25%.

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