Wall Street dipped into the red in the final minutes of the session after the US Federal Reserve issued an upbeat assessment of the health of the American economy as it emerges from the pandemic.
Up to the final 15 minutes the Dow was in the red but the S&P 500 and the Nasdaq were positive, but that latter two dipped and by the close the Dow was down around half a per cent, the S&P 500 had lost less than 0.10% and the Nasdaq dropped nearly 0.3%.
The Fed in fact upgraded its view of the economic recovery, but kept interest rates close to zero and showed no signs of moving to remove support for the economy. In addition the Fed kept its bond buying at $US120 billion a month.
At the end of a two-day meeting, officials offered a brighter picture of the US economy than they had in March.
“Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened. The sectors most adversely affected by the pandemic remain weak but have shown improvement,” the Federal Open Market Committee said.
The Fed acknowledged that inflation has risen, but again described that move as transitory. Signs of rising inflation, and the prospects of higher interest rates, have driven a rapid rise in bond yields from where they were at the start of the year.
Fed Chairman Jerome Powell told a media conference that the US recovery is “uneven and far from complete.”
While he noted that inflation pressures could rise in the coming months, these “one-time increases in prices are likely to only have transitory effects on inflation.”
Powell added that it’s still not time to talk about reducing policy accommodation, including the asset purchases.
“It will take some time before we see substantial further progress,” he said, repeating a phrase the FOMC has used repeatedly in its post-meeting statement.
And from well sourced media stories in Australia on Thursday morning it seems the Morrison government is moving that way – following the lead of the Reserve Bank – and will continue to stimulate the economy in the 2021-22 budget next month.
While the Fed noted the rise in inflation, bond traders held their nerve this time and the yield on US 10 year bonds remained at 1.62% in the wake of the Fed statement’s release. That is about where it has been trading in recent weeks without much sign of wanting to return to the most recent high of 1.77% at the end of March.
The Aussie dollar edged closer to 78 US cents as the greenback traded weaker.
While the Dow remained in the red, the S&P 500 rose and then dipped back into negative territory but the Nasdaq remained positive. Gold, copper (new 9 year plus highs), silver and oil all ended higher, buoyed by the optimism.
Oil in fact settled at six week highs above $US63 a barrel for US West Texas type crude. Copper topped $US4.50 a pound on Comex and Comex gold traded around $US1,780 an ounce, up a dollar or two.
Iron ore prices eased – the price of 62% Fe fines delivered to northern China lost $US2.79 a tonne to $US192.52 and the price of 65% Fe fines fell $US1.20 a tonne to $US226.60.
The Fed made it clear that Covid remains the main challenge for the US economy’s growth: “The ongoing public health crisis continues to weigh on the economy, and risks to the economic outlook remain,” the statement said.
At the March meeting, the same sentence included “employment” as an area where the crisis was having a negative impact, indicating that officials are noting improvement in the labor market.
That’s an assessment very close to what we will see from the RBA next Tuesday after its policy meeting.
