As expected, the Federal Reserve once again stood firm on the interest rate, while the markets and exchange traded funds seemed to like the news.
The key interest rate remained unchanged at 2%, reports Martin Crutsinger for the Associated Press. The benchmark prime lending rate will also stay at 5%, its lowest level since 2004.
Chairman Ben Bernanke said tight credit conditions, high energy prices and the continued contraction in housing will continue to weigh on U.S. economic growth.
Many economists believe that the rate will remain unchanged for the rest of the year.
There was other good news (at least, if you’re not holding oil futures) for the market: oil dropped as low as $118 a barrel. That’s its lowest point since early May. Crude is now nearly 20% off its all-time trading high of $147.27 hit on July 11.
The service sector contracted in July, as well, but it was less than expected. New orders fell as prices climbed, putting a crimp on growth for retailers, truckers and insurers, reports Ellen Simon for the Associated Press.
The reading was 49.5, up from 48.2 in June. Economists were predicting a reading of 49. A number below 50 signals contraction, while above 50 signals growth.
Some ETFs that could be affected by contraction in the service sector include:
- PowerShares Dynamic Insurance Portfolio (PIC), down 8.5% year-to-date
- iShares Dow Jones U.S. Insurance Index Fund (IAK), down 25.1% year-to-date
- Vanguard Consumer Discretionary (VCR), down 15% year-to-date
- SPDR S&P Retail (XRT), down 11.1% year-to-date