US markets closed mostly lower; Dow eke out modest gains

15 Jun 2017 Evaluate

The US markets closed mostly lower on Wednesday, as the Federal Reserve hiked the fed-funds futures rate after its two-day policy meeting, as expected, and indicated that it would reduce its $4.5 trillion balance sheet this year. The Federal Reserve raised interest rates for the second time in three months and said it would begin cutting its holdings of bonds and other securities this year, signaling its confidence in a growing US economy and strengthening job market. In lifting its benchmark lending rate by a quarter percentage point to a target range of 1.00 percent to 1.25 percent and forecasting one more hike this year, the Fed seemed to largely brush off a recent run of mixed economic data. The US central bank’s rate-setting committee said the economy had continued to strengthen, job gains remained solid and indicated it viewed a recent softness in inflation as largely transitory. The Fed also gave a first clear outline on its plan to reduce its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities, most of which were purchased in the wake of the 2007-2009 financial crisis and recession. It expects to begin the normalization of its balance sheet this year, gradually ramping up the pace. The plan, which would feature halting reinvestments of ever-larger amounts of maturing securities, did not specify the overall size of the reduction. The initial cap for the reduction of the Fed’s Treasuries holdings would be set at $6 billion per month, increasing by $6 billion increments every three months over a 12-month period until it reached $30 billion per month. Fed Chairwoman Janet Yellen said she still expects inflation to hit a 2% target next year, mentioning that recent declines are coming from such areas as telecom.

On the economy front, the cost of goods and services for American consumers fell in May for the second time in three months as inflation continued to recede from a recent high-water mark. The consumer price index, or cost of living, fell by a seasonally adjusted 0.1% last month. A big drop in gasoline prices played a big part. More important, the rate of inflation over the past 12 months slowed to 1.9% in May from a five-year high of 2.7% just four months ago. Annual inflation is now running a tick below the Federal Reserve’s goal of 2%. US business inventories fell 0.2% in April. The inventory-to-sales ratio, an indication of demand, was unchanged at 1.37 months. At April’s sales pace, that’s how long it would take for businesses to clear their shelves.

Separately, US retailers in May reported the biggest decline in sales in 16 months, largely owing to lower gasoline prices and fewer Americans buying new cars and trucks. Sales at retailers nationwide sank 0.3% last month, the biggest drop since January 2016. The May sales report was generally weak across the board. The reversal last month unwound much of the strength in April when sales jumped 0.4%. April sales benefited from a late Easter holiday and the arrival of tax refunds for millions of American workers. Sales at auto dealers slipped 0.2% last month. Auto sales account for about one-fifth of all US retail sales and have an outsized impact on the monthly report.

The Nasdaq was down 25.48 points or 0.41 percent to 6,194.89, S&P 500 edged lower by 2.43 points or 0.10 percent to 2,437.92, while the Dow Jones Industrial Average added 46.09 points or 0.22 percent to 21,374.56.

US markets closed mostly lower; Dow eke out modest gains

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