US markets close higher on Fed minutes

17 Aug 2017 Evaluate

The US markets closed moderately higher on Wednesday, restoring the Dow above the psychologically-important 22,000 mark, after Federal Reserve minutes suggested that the central bank is wrestling with sluggish inflation but eager to commence an unwind of its $4.5 trillion asset portfolio. The market’s gains came after a volatile session, reflecting uncertainty about the strategic path for the central bank and political tensions facing President Donald Trump that could disrupt his pro-growth agenda. Cleveland Fed President Loretta Mester said that while some price readings have fallen this year, expectations are more stable, adding that monetary policy must anticipate changes in the data and not react to temporary aberrations. She said there is roughly an equal chance that the Fed is forced to raise rates more or less aggressively than currently planned in the months and years ahead. Risks to the Fed’s current median forecast of one more rate hike this year and three next year are balanced, she added, as businesses weigh an improving global economy against uncertainty over the policies of President Donald Trump’s administration.

Meanwhile, Federal Reserve policymakers appeared increasingly wary about recent weak inflation and some called for halting interest rate hikes until it was clear the trend was transitory, according to the minutes of the US central bank’s last policy meeting. The readout of the July 25-26 meeting, also indicated the Fed was poised to begin reducing its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities. Last month’s meeting, which concluded with a unanimous decision to leave rates unchanged, was marked by a lengthy discussion about the recent soft inflation readings. The central bank’s preferred inflation measure dropped to 1.5 percent in June from 1.8 percent in February and has remained below its 2 percent target for more than five years. The inflation retreat has spurred concerns the Fed may have to cool its monetary tightening pace even though the economy is growing moderately and the unemployment rate fell to 4.3 percent in July, matching a 16-year low touched in May.

On the economy front, builders broke ground on fewer homes in July, but new-home construction continues to grind slowly and steadily higher, supporting a gradually improving housing market. Housing starts ran at a 1.16 million seasonally adjusted annual rate. That’s 4.8% below June’s pace, and 5.6% lower compared to a year ago. Housing permits, which foreshadow future construction activity, slid 4.1% in July compared to June, to a seasonally adjusted annual 1.22 million pace. Permits are 4.1% higher than in July 2016, however. Another sign of a stabilizing housing market may be the pace of single-family starts. They were at 856,000 rate in July, barely changed from the 860,000 rate notched in June. A year ago, they were at a 772,000 annual rate.

The Dow Jones Industrial Average gained 25.88 points or 0.12 percent to 22,024.87, the Nasdaq added 12.10 points or 0.19 percent to 6,345.11, while the S&P 500 edged higher by 3.50 points or 0.14 percent to 2,468.11.

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