Federal Reserve Policy: Patience and a good economy

So it's no surprise stocks finished Wednesday with a downward bias following Federal Reserve Chairman Jerome Powell's well-polished presentation to headline-seeking journalists Wednesday afternoon.

The S&P/ASX 200 Index advanced 31 points or 0.5 per cent at the open on Friday, following a less than 2-point gain in the previous session.

The rise came after the US government reported that supplies of oil fell 9.6 per cent last week and news that OPEC plans on maintaining deep production cuts. In Brazil, stocks and the real sank after former Brazilian president Michel Temer was arrested as part of the "Carwash" corruption probe, clouding the outlook for the government's key economic reforms. "And frankly, if we didn't have somebody that would raise interest rates and do quantitative tightening, we would have been at over 4 [percent] instead of at 3.1 [percent]".

Treasury yields fell after the Fed's statement, with the benchmark 10-year touching a 14-month low. The FOMC statement said "The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes".

"When it comes to making policy decisions, we interpret the Fed's preference for patience as one of timing, indicating the current hiking cycle hasn't ended quite yet", said Charlie Ripley, a senior market strategist for Allianz Investment Management.

Still, he said, there are ongoing risks, including those related to Britain's exit from the European Union, U.S. trade talks with China, and even the outlook for the U.S. economy, which he said the Fed is watching closely. Copper lost 0.03 percent to $6,457.00 a tonne and palladium hit a record high of $1,608.005 per ounce on concern over tight supplies.

Treasury prices moved higher and rates lower with the 10-year yield losing 9 points to 2.53% nearly at the bottom of its 52 week range of 2.52% to 3.26%.

So much for those worries about rising interest rates.

"OPEC and non-OPEC producers are determined to get the supply and demand dynamics better into balance, recognising that US shale production is going to continue to rise", said Andy Lipow, president of Lipow Oil Associates in Houston. A lower unemployment rate helped to fuel further gains in the aussie while New Zealand's quarterly GDP figures for Q4 met expectations to help give the kiwi a boost. The index that tracks the greenback versus the euro, yen, sterling and three other currencies was down 0.37 per cent at 96.028, its lowest since February 2.

In support of the goals of fostering maximum employment and price stability, the Federal Open Market Committee (FOMC) chose to maintain the target range for the federal funds rate at 2.25 percent to 2.5 percent, the central bank said in a statement.

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"Interest rates have traditionally been a huge factor in the market", Peter Tuchman, a stock trader on the floor of the New York Stock Exchange, told Xinhua.

Oil prices edged lower, but held near 2019 highs, supported by a tightening of global stocks, OPEC production cuts and USA sanctions on key producers Iran and Venezuela.

US crude rose 0.02 percent to $59.10 per barrel and Brent was last at $67.75, up 0.31 percent on the day.

USA gold futures jumped 1.3 percent to $1,318.50 an ounce.

  • Zachary Reyes