Fed Reignites Rate-Hike Talks
OptionsClick | Sep 25, 2015 07:06AM ET
U.S. stock extended their losses as Federal Reserve Chair Janet Yellen reignites the discussion over raising interest rates. Despite concerns over Yellen’s health, highlighted by her struggle to finish her speech as planned, the speech made it clear that the Federal Reserve was indeed still on track to raise interest rates for the first time in nearly a decade. According to Yellen, tightening policies should be introduced into the market later this year as long as inflation and employment stay on track. This came as a surprise to those who saw last week’s Federal Open Market Committee as a large step back in the central bank’s intentions to tighten monetary policy. According to Yellen, she expects the strong dollar and low oil prices to correct themselves, allowing more robust U.S. inflation. The Federal Reserve has two more opportunities to raise interest rates this year, with policy meetings scheduled for October and December. Yellen’s concerns that inflation would rise more slowly or rapidly than expected would call for readjustment of policy. She warned that a too-rapid rise in inflation would force the bank’s hand in extreme tightening of policy, possibly tipping the market into recession territory. The Fed’s definition of acceptable conditions for raising rates are continued solid economic growth, further gains in resource utilization and long-term inflation expectations in line with pre-recession expectations. The return to talks of raising interest rates has seen Wall Street extend its losses on Thursday. The S&P 500 index declined 6.52 points, or 0.34%, to trade at 1,932.24. The Dow Jones Industrial Average fell 78.57 points, or 0.48%, to trade at 16,201.32 at the end of the day. The Nasdaq Composite moved 18.21 points, or 0.38% lower to trade at 4,734.48.
In currencies, the euro traded at $1.1164, down 0.6% from $1.1230 prior to Yellen’s speech. The dollar advanced against the yen, fetching 120.32 yen on the dollar after gaining 0.2%. Despite Yellen’s reiteration of the Fed’s intentions to raise rates, top analysts posit that there is no guarantee such a move will indeed happen this year, causing the U.S. dollar to lack a clear direction. The Dollar index, which compares the greenback against a basket of six of its major counterparts, rose 0.4% to 96.318. The Brazilian real recovered from a record low of 4.2482 on the dollar after the Brazilian central bank confirmed that it would employ all of its financial instruments to counter the real’s collapse. The real saw marked gains during the day as it climbed 6.1% to trade at 3.9363 per dollar.
Traders are looking forward to today’s interest rate decision from the Bank of Japan. Later in the day, U.S. GDP will be released, possibly providing some indication as to whether the Federal Reserve would indeed raise interest rates this year.
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