The market reacted intensely last week to the Federal Reserve’s announcement that it will be targeting inflation of two percent. Investors seemed to breathe a collective sigh of relief, as the decision was widely seen as a sign that the Fed is taking further steps to support economic growth and prevent a prolonged recession.
The news sent the Dow Jones Industrial Average and S&P 500 soaring to close up 2.6 percent and 2.9 percent, respectively. These gains came on the heels of the broad-based rally that occurred during the week as a result of the renewed confidence in the US economy.
The rally was also bolstered by the Fed’s decision to cut interest rates to near-zero levels and launch several new programs designed to support the economy. These included the launch of the Term Asset-Backed Securities Loan Facility (TALF) and Primary Market Corporate Credit Facility (PMCCF), as well as the creation of the Secondary Market Corporate Credit Facility (SMCCF).
In addition, the boost in investor confidence was reinforced by the Federal Reserve’s announcement that it was providing more clarity on its “blow-off top” strategy for rate hikes. Under this strategy, the Fed said it will focus on gradual increases when the economy begins to improve and inflation begins to increase. This means that the central bank won’t rush to raise interest rates, but instead will take a more gradual approach.
The good news was welcomed by Wall Street analysts who argued that the Fed’s moves removed the fear of sudden rate hikes that could have a negative impact on the economy. They also said that the Fed’s communication on the strategy reinforced the sense of confidence in the market.
All in all, it appears that the market has reacted positively to the Fed’s announcement and its new set of policies. The Fed’s “blow-off top” strategy also reinforces the view that the US economy is likely to recover in the coming months amidst the backdrop of an accommodative monetary policy environment.
The market reacted intensely last week to the Federal Reserve’s announcement that it will be targeting inflation of two percent. Investors seemed to breathe a collective sigh of relief, as the decision was widely seen as a sign that the Fed is taking further steps to support economic growth and prevent a prolonged recession.
The news sent the Dow Jones Industrial Average and S&P 500 soaring to close up 2.6 percent and 2.9 percent, respectively. These gains came on the heels of the broad-based rally that occurred during the week as a result of the renewed confidence in the US economy.
The rally was also bolstered by the Fed’s decision to cut interest rates to near-zero levels and launch several new programs designed to support the economy. These included the launch of the Term Asset-Backed Securities Loan Facility (TALF) and Primary Market Corporate Credit Facility (PMCCF), as well as the creation of the Secondary Market Corporate Credit Facility (SMCCF).
In addition, the boost in investor confidence was reinforced by the Federal Reserve’s announcement that it was providing more clarity on its “blow-off top” strategy for rate hikes. Under this strategy, the Fed said it will focus on gradual increases when the economy begins to improve and inflation begins to increase. This means that the central bank won’t rush to raise interest rates, but instead will take a more gradual approach.
The good news was welcomed by Wall Street analysts who argued that the Fed’s moves removed the fear of sudden rate hikes that could have a negative impact on the economy. They also said that the Fed’s communication on the strategy reinforced the sense of confidence in the market.
All in all, it appears that the market has reacted positively to the Fed’s announcement and its new set of policies. The Fed’s “blow-off top” strategy also reinforces the view that the US economy is likely to recover in the coming months amidst the backdrop of an accommodative monetary policy environment.
