Fed Speak: US Rates to Stay Ultra-Low for a Long Time, Market Likes ‘Cheap Money

Fed Speak: US Rates to Stay Ultra-Low for a Long Time, Market Likes ‘Cheap Money

#Fed #interest #inflation #money #market #investors

$DIA $SPY $QQQ $RUTX $VXX

The Trump Fed announced a significant change Thursday in how it manages interest rates by saying it plans to keep rates near Zero even after inflation has exceeded the Fed’s 2% target level.

The change tells us that the Fed is prepared to tolerate a higher level of inflation than it generally has in the past. Meaning that borrowing rates for households and businesses will remain ultra-low for years to come.

The new goal says that “following periods when inflation has been running persistently below 2%, appropriate monetary policy will likely aim to achieve inflation moderately above 2% for some time.”

The new Fed policy underscores its belief that a low jobless rate was good for the economy by saying it would seek to assess the “shortfalls” in employment from the maximum level.

In his ‘Jackson Hole’ speech detailing the changes, Chairman Powell made clear that the policy change reflects the reality that high inflation no longer appears to pose a serious threat to the economy, even when unemployment is low and the economy is growing strongly.

Rather, Chairman Powell said, the economy has evolved in a way that allows the Fed to keep rates much lower than it otherwise would without trigering price pressures.

The economy is always evolving,” he said. “Our revised statement reflects our appreciation for the benefits of a strong labor market, particularly for many in low- and moderate-income communities and that a robust job market can be sustained without causing an unwelcome increase in inflation.”

In his speech, Chairman Powell said that the Fed’s decision to allow unemployment to fall to a 50-yr low before the virus chaos played an important role in lifting the fortunes of low-income workers.

The financial stocks responded positively. S&P 500, NAS 100, NAS Comp in record territory, and DJIA just a bit off of its February highs.

Thursday, the major US stock market indexes finished at: DJIA +160.35 at 28492.27, NAS Comp -39.72 to 11625.34, S&P 500 +5.82 at 3484.55

Volume: Trade on the NYSE came in light at 778-M/shares exchanged.

HeffX-LTN’s overall technical outlook for the major US stock market indexes is Very Bullish in here.

  • NAS Comp +29.6% YTD
  • S&P 500 +7.9% YTD
  • DJIA -0.2% YTD
  • Russell 2000 -6.2% YTD

Looking Ahead: Investors will receive the Personal Income and Spending report for July, the final Univ. of Michigan Index of Consumer Sentiment (MSI) for August, and Wholesale Inventories for July Friday.

Have a healthy day, Keep the Faith!

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Paul Ebeling

Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he it the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.