Stocks ripped higher after the Federal Reserve’s latest monetary policy statement saw the Fed say it would be “patient” before raising interest rates for the first time since before the Financial Crisis. The rally in stocks after the S&P 500 yesterday had its third straight losing session, and again avoided, for the first time, logging four straight losing days.
First, the scoreboard:
- Dow: 17,354.6, +285.7, (+1.6%)
- S&P 500: 2,012.5, +40, (+2%)
- Nasdaq: 4,643.3, +95.4, (+2.1%)
And now, the top stories on Wednesday:
1. It was all about the Fed. On Wednesday, the Fed released its latest monetary policy statement, replacing “considerable time” with “patient” when describing how it plans to approach the beginning of interest rate hikes, or what the Fed calls “policy normalization.” Here’s the key passage from the Fed statement: “Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.” The Fed added that it sees this guidance as “consistent” with its prior guidance that it would wait a “considerable time” between the end of QE and the beginning of interest rate hikes.
2. Fed Chair Janet Yellen also held a press conference following the meeting, and added some more colour around what “patience” really means, saying that the Fed expects to keep rates pegged near 0% for “at least the next couple of meetings.” Yellen again emphasised that the Fed would monitor incoming data, and said that faster than expected improvements in the economy could warrant more aggressive action, while economic conditions that disappoint could see the Fed keep rates lower for a longer time than it currently expects.
3. Yellen was also asked about the impact that oil could have consumer prices, as the declining price of oil is expected to keep headline inflation, which doesn’t strip out the more volatile costs of food and energy, well below the Fed’s target. Yellen said that the impacts of oil prices are likely to be “transitory,” adding that in the past, when inflation expectations have been “well-anchored” these declines in commodity prices have not had a lasting impact on inflation.
4. Oil had another wild session on Wednesday. Near noon on Wednesday, WTI futures surged to nearly $US59 a barrel after sitting near $US55 for most of the morning. But during the afternoon, oil gave back almost all of these gains as the commodity remains highly volatile.
5. With the Fed’s latest policy statement, the Fed also released its latest Summary of Economic Projections, which also included the Fed’s latest “dot plot” showing expectations for future interest rates.
6. On Wednesday morning, the consumer price index fell by the most since December 2008. The “headline” index, which doesn’t exclude the cost of food and gas, fell by 0.3% in November as the price of gas fell by 6.6% month-on-month. “Core” inflation, which the Fed focuses on and strips out food and gas, rose 0.1% in November and when compared to the prior year, rose 1.7%.