US Stock Market Overview – Stocks Rally Following Fed Decision to Keep Rates Unchanged

US stocks moved higher on Wednesday following the Fed’s decision to keep interest rates unchanged. The Fed kept interest rates unchanged and lower their growth forecasts. They also said that rates would likely remain at current levels until inflation started to accelerate higher. Most sectors in the S&P 500 index were higher led by technology and materials, real-estate bucked the trend.

The Fed Keeps Interest Rates Unchanged

The Fed kept interest rates unchanged. Fed Chair Powell says he would want to see a persistent rise in inflation before hiking rates again. The FOMC held rates unchanged as widely expected and kept the funds’ rate in a target range of 1.5%-1.75%. The committee indicated that monetary policy is likely to stay where it is for an unspecified time, though officials will continue to monitor conditions as they develop. The FOMC indicated little chance of a cut or increase in 2020.

Wednesday’s projections of future rate decisions saw a decided downward shift in the dot plot which is projected interest rate changes. Currently just four of 17 members anticipating one quarter-point move up in 2020. In September it was split 9-8. There also was a general downward shift for 2021, with the chart pointing to at least one and possibly two increases. The central projection came down for each of the four years included in the committee’s estimates. The median expectation for the funds rate is 1.6% in 2019 and 2020, down from 1.9% in the September estimate. The 2022 projection also came down to 2.1% from 2.4%, though the longer-run estimate remained consistent at 2.5%.

Growth was Downgraded

The FOMC projected 2019 to finish with a 2.2% gain in gross domestic product, followed in consecutive years by 2%, 1.9% and 1.8% gains. On the inflation front, the Fed now see the core personal consumption expenditures gauge to register just 1.6% growth this year, down from the 1.8% projection in September. They kept their estimates consistent at 1.9% in 2020 and 2% for the following two years.

CPI Rose More than Expected

US consumer prices rose more than expected in November. The Labor Department reported that its consumer price index increased 0.3% last month. The CPI advanced 0.4% in October. In the 12 months through November, the CPI rose 2.1% after gaining 1.8% in October. Expectations were for CPI to rise 0.2% in November and rising 2.0% on a year-on-year basis. Excluding the volatile food and energy components, the CPI rose by 0.2%, matching October’s increase. Core CPI was up 0.23% last month compared to 0.16% in October. It was lifted by gains in healthcare and prices of used cars and trucks, recreation and hotel and motel accommodation. On a year over year basis core CPI increased 2.3% after a similar gain in October.