US markets closed higher as Fed keeps interest rates unchanged

22 Sep 2016 Evaluate

The US markets closed higher on Wednesday, after the Federal Reserve opted to keep interest rates unchanged as it sought further evidence of economic strength. The decision to keep rates unchanged was widely expected. But the Fed’s tone reflects the recent softening of economic data and is generally positive for risky assets such as equities. The policy-setting Federal Open Market Committee, in a 7-to-3 vote, opted to keep rates steady in what Chairwoman Janet Yellen described as a new normal as central banks elsewhere around the globe embark upon quantitative-easing measures. Yellen also added that she is pleased with the health of the economy. Fed still wants to see more progress in the labor market - more people finding jobs or looking for work again - and noted that inflation is still on the low side. The Fed’s dot plot, a scorecard of top officials’ interest-rate predictions, reflected that hawkish bent, 14 of the 17 Fed officials saw a rate increase by year-end. The Fed also projected a less aggressive rise in interest rates next year and in 2018, and cut its longer-run interest rate forecast to 2.9 percent from 3.0 percent. The Fed’s policy committee was deeply divided. Boston Federal Reserve President Eric Rosengren, Kansas City Fed President Esther George and Cleveland Fed President Loretta Mester all wanted an immediate increase in rates. The last time there was three dissents was in December 2014. Rosengren, who has been known as a dove on the Fed, has been pushing for another rate increase to counter what he sees as financial excesses.

Separately, according to the OECD’s latest Interim Economic Outlook, weak trade growth and financial distortions are exacerbating slow global economic growth. The global economy is projected to grow at a slower pace this year than in 2015, with only a modest uptick expected in 2017. The Outlook warns that a low-growth trap has taken root, as poor growth expectations further depress trade, investment, productivity and wages. The OECD projects that the global economy will grow by 2.9 percent this year and 3.2 percent in 2017, which is well below long-run averages of around 3¾ percent. Growth among the major advanced economies will be subdued. In the United States, where solid consumption and job growth is countered by weak investment, growth is estimated at 1.4 percent this year and 2.1 percent in 2017.

The Dow Jones Industrial Average added 163.74 points or 0.90 percent to 18,293.70, Nasdaq gained 53.83 points or 1.03 percent to 5,295.18, while S&P 500 was up 23.36 points or 1.09 percent to 2,163.12.

The Indian ADRs closed mostly in green; HDFC Bank was up 1.38%, Tata Motors was up 0.52% and Infosys was up 0.08%. On the other hand, Dr. Reddy’s Lab was down 0.41% and Wipro was down 0.01%.

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