US markets closed higher after Fed hikes interest-rate

17 Dec 2015 Evaluate

The US markets closed higher on Wednesday, extending gains to a third straight session after the Federal Reserve raised its key interest rate for the first time in nearly a decade and emphasized a gradual path for future rate hikes. The highly anticipated move was read as a vote of confidence in the US economy. The Federal Reserve raised interest rates for the first time since 2006, ending what Chairwoman Janet Yellen called an extraordinary period in which the bank sought to revive the economy in the aftermath of the Great Recession. Policy makers voted 10 to 0 to lift the Fed’s short-term borrowing rate by a quarter-point to a range of 0.25% to 0.5%. The Fed’s short-term rate had kept near zero for seven years, marking an unprecedented era in the history of US monetary policy triggered by the worst financial crisis and economic downturn since the 1930s. Fed officials stated that an improved economy was ready for a rate hike, pointing to solid consumer spending, a rebounding housing market and stronger business fixed investment. The central bank also took careful note of a healthier labor market in which the unemployment rate has tumbled to 5% - just half as much compared to the early stages of a recovery that began in mid-2009. Yet the Fed used new language in its statement to soften the blow to the end of easy money, stressing repeatedly that the pace of interest-rate hikes would be gradual. Interest rates are expected to rise a bit slower, for example, in 2017 and 2018 than the Fed previously predicted. Fed Chairwoman Janet Yellen acknowledged that inflation has missed the Fed’s target for three years, but implied that rates can be raised before reaching the target.

On the economy front, housing starts rose 10.5% in November to a seasonally adjusted annual rate of 1.173 million. Multi-family units led the increase, jumping 18.1%. That continued the recent strong streak for construction of apartment buildings. But single-family starts were also up solidly, by 7.6%. Compared to a year ago, multi-family starts were up 21.4%, while single-family starts were 17.3% higher. Housing permits jumped 11% to a pace of 1.289 million, the highest in 5 months. Industrial production in November fell at the fastest monthly rate since March 2012, suggesting that weakness in the manufacturing sector is ongoing. The industrial production shrank 0.6% in November. This is the third straight monthly decline in output. Over the past year, production is down 1.2%. In addition, October’s decline was revised to a 0.4% fall from an initially reported 0.2% drop, though there were slight upward changes to August and September numbers. Capacity utilization, which measures slack across industrial firms, fell in November to 77% from October’s revised reading of 77.5%. Capacity use historically averaged above 80% before the last recession.

The Dow Jones Industrial Average added 224.18 points or 1.28 percent to 17,749.09, the Nasdaq was up 75.77 points or 1.52 percent to 5,071.13 and the S&P 500 gained 29.66 points or 1.45 percent to 2,073.07.

The Indian ADRs closed mostly in green; HDFC Bank was up by 1.05%, Tata Motors was up 1.03%, Dr. Reddy’s Lab was up by 0.67% and ICICI Bank was up 0.17%. On the other hand, Wipro was down by 0.04%.

US markets closed higher after Fed hikes interest-rate

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