US markets closed lower amid rate-hike worries

29 May 2015 Evaluate

The US markets closed lower on Thursday, as investors grappled with comments from Federal Reserve officials about the possibility of raising interest rates this year. John Williams, president of the San Francisco Fed, stated that it is not clear how the Federal Reserve should respond to the purported effect that low interest rates are causing excessive risk-taking in financial markets. Williams added that it could either argue for a more rapid rate hike to discourage further risk or imply a more gradual course of action to mitigate the risk of a market tantrum. These ambiguous effects of monetary policy on financial stability are a good argument for limiting the use of this tool. St. Louis Fed President James Bullard stated that he wants to see confirmation that the economy is bouncing back before raising interest rates. Bullard enlightened that the weak first quarter gross domestic product was a little suspect due to seasonal adjustment quirks. Separately, Narayana Kocherlakota, the president of the Minneapolis Fed, stated that the Federal Reserve should strive to replicate for the next three years the labor market gains seen in 2014. Kocherlakota added that such improvement would bring labor market conditions back to their pre-Great Recession levels. He enlightened that the labor market continues to improve in 2015 but at a slightly slower rate than last year.

On the economy front, more Americans sought unemployment benefits in late May, but the vast majority of employees are secure in their jobs as the US recovery prepares to enter its seventh year. Initial jobless claims in the week from May 17 to May 23 rose by 7,000 to a seasonally adjusted 282,000. Although that’s the highest level in five weeks, new claims are still near a 15-year low. The average of new claims over the past month increased by 5,000 and stood at 271,500, bouncing off a 15-year low. A gauge of pending home sales increased in April for the fourth consecutive month to reach the highest level in nine years, signaling that upcoming deals could pick up. The index from the National Association of Realtors reached a seasonally adjusted 112.4 in April, up 3.4% from 108.7 in March and 14% from a year earlier.

The Dow Jones Industrial Average lost 36.87 points or 0.20 percent to 18,126.12, Nasdaq was down by 8.61 points or 0.17 percent to 5,097.98 while, S&P 500 was lower by 2.69 points or 0.13 percent to 2,120.79.

The Indian ADRs closed mostly in green on Thursday; Tata Motors was up by 0.70%, Infosys was up by 0.28% and Wipro was up 0.18%. On the other hand, Dr. Reddy’s Lab was down 0.34% and HDFC Bank was down 0.16%.

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