US markets closed higher as Fed pauses on rate hike

17 Mar 2016 Evaluate

The US markets closed higher on Wednesday, with the S&P 500 and Dow reaching 2016 highs after the Federal Reserve kept its key interest rates unchanged and downgraded its forecast for the number of rate increases to two in 2016 from an earlier projection of four. The Federal Reserve left the target range for its federal funds rate unchanged at 0.25 percent to 0.5 percent for the second time during its FOMC meeting held in March 2016. Policymakers stated that economic activity has been expanding at a moderate pace but lowered GDP growth and inflation estimates for this year. GDP growth outlook for 2016 was lowered to 2.2 percent from 2.4 percent in December projection. For 2017 it was cut to 2.1 percent from 2.2 percent, while for 2018 was left unchanged at 2 percent. PCE inflation is expected to be 1.2 percent this year, lower than 1.6 percent in the December projection while estimates for 2017 and 2018 were left unchanged at 1.9 percent and 2 percent respectively. However, global economic and financial developments continue to pose risks. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further.

On the economy front, the construction on new houses rose in February and stood to a five-month high, led by the biggest increase in single-family units in nine years. Housing starts climbed 5.2% last month to an annual pace of 1.18 million. The faster pace of construction signals that housing will remain one of the best-performing segments of the US economy and help underpin growth in 2016. Single-family starts jumped 7.2% to an annual rate of 822,000. That’s the highest level since November 2007, one month before the Great Recession started. Consumer prices fell in February owing to another drop in gasoline, but the rising cost of shelter and medical care is creating upward pressure on underlying inflation. The consumer price index declined 0.2% last month. Energy prices dropped 6% last month, mostly because of cheaper gasoline. The price of food, however, moved up 0.2% as the cost of groceries rose for the first time since last fall. Over the past 12 months the CPI has risen at a mild 1% rate. That’s down from 1.4% in January. Yet stripping out food and energy, so-called core prices jumped 0.3% in February.

On the other hand, after hopeful signs of stabilization in January, industrial production decreased 0.5% in February. Output was dragged down by sizable declines in utilities and mining. Manufacturing was up for the second straight month. Manufacturing rose 0.2% in February, after a 0.5% gain in January. Output of motor vehicles and parts slipped 0.1% after a 3.4% gain in January. Capacity utilization fell to 76.7% in February from 77.1%, in line with expectations. Yet this is the fourth decline in total output over the past five months. Over the past year, industrial output is down 1%.

The Dow Jones Industrial Average added 74.23 points or 0.43 percent to 17,325.76, the Nasdaq was up 35.30 points or 0.75 percent to 4,763.97 while, the S&P 500 gained 11.29 points or 0.56 percent to 2,027.22.

The Indian ADRs closed in green; HDFC Bank was up 1.30%, Dr. Reddy’s Lab was up 0.80%, Tata Motors was up 0.58%, Infosys was up by 0.43% and ICICI Bank was up 0.22%.

US markets closed higher as Fed pauses on rate hike

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