US markets closed higher as Fed hikes interest rates

16 Mar 2017 Evaluate

The US markets closed higher on Wednesday, after the Federal Reserve raised interest rates for the third time since December 2015. The Fed increased its benchmark interest rate by 25 basis points, noting that headline inflation is moving close to its 2% target. The dot plot, a table of policy makers’ projections for short-term rates, showed more unity among the central bankers about their interest-rate forecast and indicated two more hikes this year. The overall tone of the Fed statement wasn’t too aggressive, putting to rest some market concerns of a more hawkish central bank. The Fed’s policy-setting Federal Open Market Committee (FOMC) voted to raise the key federal funds rate to a range of 0.75-1.0 percent. There was one dissenting voice. The FOMC once again said it expects those economic improvements to continue with only gradual adjustments in the policy interest rate. In its quarterly economic projections, the central bankers still see the federal funds rate rising to 1.4 percent by the end of the year, which would imply another two increases, unchanged from the previous forecast. They see the benchmark rate rising to 2.1 per cent next year, the same as in the December Summary of Economic Projections (SEP), which would mean another two rate hikes in 2018. Yellen is due to speak at a news conference to explain the decision, and Fed-watchers will scrutinize her comments carefully for any indication they are considering additional rate hikes. According to the Atlanta Federal Reserve’s latest forecast release the US economy is expanding at its weakest pace in two years, losing momentum following solid growth in the fourth quarter of 2016. The Atlanta Fed's GDP Now forecast model showed that US gross domestic product was on track to grow at a 0.8 percent annualized pace in the first quarter following the latest jobs, consumer price and retail sales data, down from the 1.2 percent rate calculated on March 8.

On the economy front, a gauge of New York-area manufacturing remained close to two-year high levels in March. The Empire State manufacturing survey slipped to 16.4 in March, down only 2.3 points from 18.7 in February. The new-orders index climbed 7.8 points to 21.3 in March, its highest level in several years. The unfilled orders index rose to 14.2, its highest level in more than a decade. The shipments index moved down to 11.3 from 18.2 in the prior month. Readings on the labor market were positive. The index for number of employees rose 6.8 points to 8.8 in March, indicating a faster pace of hiring. The average workweek rose to 15 from 4.1 in February.

Separately, most US retailers reported weak sales in February despite unseasonably warm weather, a likely offshoot of delayed tax refunds for millions of households. Sales at retailers nationwide rose a scant 0.1% in February, slowing sharply after big gains in the prior two months. Yet even after the setback in February, retailers have gotten off to a good start this year, helped by a steadily growing US economy and the most confidence among consumers in more than a decade. Sales were 3.7% higher in the first two months of 2017 versus the same period a year ago.

The Dow Jones Industrial Average added 112.73 points or 0.54 percent to 20,950.10, the Nasdaq was up 43.23 points or 0.74 percent to 5,900.05, while S&P 500 gained 19.81 points or 0.84 percent to 2,385.26.

The Indian ADRs closed mostly in green; Tata Motors was up 1.24%, HDFC Bank was up 0.56%, ICICI Bank was up 0.35% and Infosys was up 0.28%. On the other hand, Dr. Reddy’s Lab was down 1816%.

US markets closed higher as Fed hikes interest rates

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