Stocks wrapped Wednesday’s choppy post-Fed session a touch in the green. Early indicators today set up the broader market for a three-session win streak, pushed there once the central bank struck a dovish tone and reassured Wall Street that rate hikes are likely to come at a very slow pace. As expected, the Fed held its benchmark interest rate near zero for now. But we now have some indication for pacing. The majority of central bankers believes that improving U.S. economic growth is likely to warrant one or two interest rate increases before the end of the year, the Fed said.
Cautiously Optimistic. The biggest takeaway from the Fed statement and Chair Janet Yellen’s press conference? Yellen herself says the first rate rise is a true sign that the financial crisis is over. That’s a big boost to sentiment in my opinion. There was more. Yellen said the economy looks to have cleared the “soft patch” of the first quarter, although the group did lower its estimated 2015 GDP reading to between 1.8%-2% from a prior view of 2.3%-2.7%. The labor market is improving and some of the downward pressure on inflation from energy prices is abating, Yellen said, but growth is still sub-par, which should slow the Fed response. Inflation data hitting this morning seemed to back the Fed’s decision. The May consumer price index (CPI) shot up 0.4% in May, reflecting a seasonal spike in gasoline prices. But when this and other volatile categories are stripped away, core consumer prices were up a slim 0.1%. Job market improvement emerged in the latest jobless benefits claims tally. They fell 12,000 to 267,000 in the latest reporting week.
Connecting the Dots. The overwhelming majority of Fed officials still want to raise interest rates this year, according to a survey released by the central bank. Only 2 of 17 officials think the bank should wait until 2016. But the message from the “dot plot” of central bank officials rate projections was mixed. The dot plot still showed rates rising to median level of 0.625% by the end of 2015. This implies two rate hikes this year, industry economists point out. Also worth noting, seven Fed officials only expect one rate hike this year, a dovish signal.
Coming Next Week. Get ready for a full line-up of the detailed reports that Wall Street and the Fed will be watching closely to confirm or refute this planned interest rate timeline. This includes two snapshots of housing market activity, in existing home sales (Monday morning) and new home sales (Tuesday morning). Tuesday also packs in the durable goods numbers; May’s report will follow a surprise April contraction. Revised Q1 GDP hits on Wednesday. It’s likely that this roster of indicators keeps bond market focus on the domestic picture early in the week; volatility in yields could continue. But it won’t be long before Greece’s debt deadlines and its potential threat to Europe’s economy and banks takes over again.
Dive In to the Market
Learn the thinkorswim® platform from those who know it best. Join daily Swim LessonsSM at 11:30 a.m. ET.