After dropping earlier in the session, stocks and index ETFs spiked briefly after the Federal Reserve meeting release Wednesday afternoon, which revealed that the central bank plans to maintain low interest rate levels and bolster the economy as necessary.
“The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals,” the press release said.
Investors and traders had been anxiously awaiting the Fed meeting with Federal Reserve Chairman Jerome Powell this week, leaving markets on edge and tilting lower, after climbing higher in recent days.
Much of the trepidation has centered on spiking interest rates, as stocks, especially tech stocks, are getting spooked once again with the 10-year Treasury yield breaking to new highs after last Friday. The 30-year rate jumped to 2.428% meanwhile, its loftiest level in nearly a year and a half. Higher rates are damaging to the value of future cash flows, which puts growth-oriented companies at a disadvantage.
But the Fed may have assuaged investor concerns, at least for now, with comments that it will pursue modest inflation while maintaining accommodative monetary policy.
“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‐term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‐backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee’s maximum employment and price stability goals. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses,” the press release added.
The release seemed to help bolster stock ETFs such as the SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust (QQQ), which traded slightly into the green, after selling off as much as 0.5-1.1% earlier in the session. The SPDR Dow Jones Industrial Average ETF (DIA) continued to hold modest gains following the announcement, as interest rates continued to climb.
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