The US markets closed mostly lower on Wednesday, maintaining a soft tone after the Federal Reserve minutes indicated that an interest-rate hike is likely but the pace of future tightening could be more moderate than expected given muted inflation. The Nasdaq bucked the broader trend to finish at a record, logging its third gain in a row. Tepid moves on Wednesday follow solid gains during the previous session when all three gauges finished at all-time closing highs. The market is closed Thursday for Thanksgiving.
Meanwhile, according to the Fed minutes, the Fed viewed a near-term increase in interest rates as possible but central bank officials also expressed concerns about persistently low inflation, hinting that the bank may dial back its rate increases in 2018. The language from the Fed’s October 31-November 1 meeting was comparatively softer than in the September discussions, reflecting worries that tepid inflation might also be a result of developments that could prove more persistent. The minutes also showed that several members worried that keeping interest rates too low could create a financial bubble. The subtle shift in the Fed’s tone stems from growing questions among senior officials about the low level of inflation despite a surging economy and the tightest labor market in more than a decade and a half. The 12-month rate of inflation based on the Fed’s preferred PCE index stands at 1.6%, below the bank’s 2% target. The measure is an even weaker 1.3% if food and energy are stripped out. Although most Fed officials still think inflation has been held down by temporary factors that will soon fade, they are less certain than they were just several months ago. Despite these nagging doubts the Fed still appears on the cusp of raise interest rates again soon. The Fed noted resilient growth despite a spate of devastating hurricanes in the early fall and saw improvement in most sectors of the economy. Yet taking note of a soaring stock market, several members worried that keeping interest rates too low could create a financial bubble. And some saw a higher risk of wage-related inflation from a booming jobs market whose pace of hiring they viewed as unsustainable.
On the economy front, initial jobless claims, a tool to measure US layoffs, fell by 13,000 to 239,000 in the week ended November 18. The more stable monthly average of claims rose 1,250 to 239,750. The number of people already collecting unemployment benefits, known as continuing claims, increased 36,000 to 1.9 million. New claims fell from a 6-week high and headed toward the extremely low levels that prevailed before a trio of hurricanes slammed the US and its Caribbean territories in September. Claims are still quite elevated in Puerto Rico, however. The island suffered the most damage from the storms and has faced a daunting recovery. Almost 7,000 islanders filed new claims last week, compared to fewer than 1,500 in the same week a year earlier. Additionally, the University of Michigan said its consumer sentiment index in November fell to a reading of 98.5 from October’s 100.7. That’s a little bit above the preliminary reading of 97.8 for November and still the second-best reading in 13 years.
Separately, durable-goods orders fell 1.2% in October, well below the forecast of a 0.7% gain. Excluding transportation, orders increased 0.4%. Business investment dipped 0.5% based on a closely followed measure known as core capital goods orders. These orders have climbed a healthy 8.1% in the past year, however, suggesting the recent decline is temporary. Durable-goods shipments edged up 0.1% in October. Inventories also rose 0.1%.
The Dow Jones Industrial Average lost 64.65 points or 0.27 percent to 23,526.18, the S&P 500 edged lower by 1.95 points or 0.08 percent to 2,597.08, while the Nasdaq added 4.884 points or 0.07 percent to 6,867.36.
