Dow Jones Industrial Average finds a bid in the thing the Fed did not do
- DJIA jumps roughly 200 points on the Federal Reserve hold, reclaiming the 52,100 area after a slide from the 52,800 area to the 51,800 area.
- The Chair's press conference at 18:30 GMT carries the only guidance on offer, since this meeting attaches no projections.
The Federal Reserve left its target range at 3.50% to 3.75% at 18:00 GMT, three voting members dissenting in favour of an immediate quarter-point increase. Equities bought the hold and ignored the split, the index adding roughly 200 points in the minutes after the headline to trade near 52,100. That is a bounce of some 350 points off the session low in the 51,800 area, and it undoes barely a third of the slide from the session high.
The briefing at 18:30 GMT is the whole risk now, because this meeting attaches no Summary of Economic Projections and a short-form statement leaves no guidance language to argue with. A discount-rate shock is the one scheduled event that hits every constituent identically, which makes a hawkish briefing more dangerous to the index than any single earnings line this week. Three dissents give the Chair cover to sound like them.
Dow Jones 5-minute chart
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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