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Markets zoom up as Fed reassures

Jun 19, 2014 at 10:05 am in Market Commentary by contrarianuk

yellen

As expected the Federal Reserve’s FOMC meeting had the desired effect and this time around the markets liked what they heard with the S&P 500 breaching another record high and the FTSE 100 currently up 55 points to 6,883.

The message was clear that the American economic recovery was broadly on track and to expect pretty good growth in the rest of 2014. Although the Fed revised down overall growth from 2.9% to 2.2% after a weak first quarter brought on by bad weather, this assumes a 3.4% growth in the remainder of the year.

If the US economy does deliver this then expectations for an early rise in interest rates may increase, though it is likely that rates will continue to stay low for what the Fed calls a considerable time. Predictions are that rates will rise to 1.13% by the end of 2015 and 2.5% in 2016.

The Federal Reserve tapered its asset purchase programme by another $10 billion to $35 billion a month as expected with Janet Yellen saying that stimulus is still needed given that the “underutilisation in the labour market remains significant”. The quantitative easing programme looks likely to end in the Autumn at the current rate of tapering.

The FOMC left inflation expectations unchanged and seems to be relaxed on overall financial stability with Yellen saying that excessive risk taking was “a concern” but had no plans to act on it., “I don’t see a broad-based increase in leverage, rapid increase in credit growth or maturity transformation, the kinds of broad trends that would suggest to me that the level of financial stability risks has risen above a moderate level”

So the markets have moved from having the “Bernanke put” to the “Yellen put” with equities seemingly underpinned by the US central bank with the focus moving from quantitative easing to how long the Fed will keep interest rates at ultra low levels.

Contrarian Investor UK

IMPORTANT: The posts I make are in no way meant as investment suggestions or recommendations to any visitors to the site. They are simply my views, personal reflections and analysis on the markets. Anyone who wishes to spread bet or buy stocks should rely on their own due diligence and common sense before placing any spread trade.

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