Accommodative Fed Measures to Support Stock Market, ETFs

July 31st at 2:25pm by Tom Lydon

Given the current modest pace in the economic recovery, the Federal Reserve reaffirmed its “highly accommodative stance” Wednesday, which could help support the equities market and stock exchange traded funds.

The SPDR S&P 500 (NYSEArca: SPY) was 0.4% higher Tuesday after the Fed released a preliminary statement, PowerShares Nasdaq 100 (NasdaqGM: QQQ) also gained 0.4% and SPDR Dow Jones Industrial Average (NYSEArca: DIA) was up 0.2%.

“Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated,” according to the Federal Reserve. “Household spending and business fixed investment advanced, and the housing sector has been strengthening, but mortgage rates have risen somewhat and fiscal policy is restraining economic growth.”

The U.S. economy expanded at an annual pace of 1.7% in the second quarter, reports Tim Mullaney for USA Today. First quarter estimates were revised down to 1.1% from 1.8% previously stated.

“The good news is that we’re on an accelerating growth trajectory once you include the changes to the first quarter data,” Moody’s economist Scott Hoyt said in the USA Today article. “We think that trend is likely to continue. We think consumer spending is picking up and residential construction should also have a good effect.”

Nevertheless, the Fed Committee has stated it will continue its purchases of Tureasury and agency mortgage-backed securities until the outlook for the labor market has improved. The Committee also left the books open to either reduce or increase the pace of purchases based on labor market and inflation changes.

“To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens,” according to the Fed.

Additionally, the Fed acknowledges that the current inflation rate below 2% could pose risks to the economic recovery, but it is confident inflation levels will move back to normal over the mid-term.

The benchmark 10-year Treasury yield was up five basis points to 2.65% Wednesday. The iShares Barclays 7-10 Year Treasury ETF (NYSEArca: IEF) was down 0.2%.

Gold futures declined 1.2%, trading around $1,309 per ounce. The SPDR Gold Shares (NYSEArca: GLD) was also down about 1.1%.

For more information on the broad markets, visit our S&P 500 category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.