If you look at the Dow’s performance today, something moved the market in a big way right around 2:00 PM EST. The major indices started the trading day on a shaky footing, staying firmly in the red through mid-afternoon when something clearly excited investors. The Dow spiked nearly 150 points, and then fell back to the level it was trading at before 2:00 PM. What happened to cause such a commotion on Wall Street?
Well, this afternoon the Federal Open Market Committee (FOMC) released the minutes to its policy meeting in July. In a nutshell, the FOMC agreed that economic activity has been “expanding moderately in recent months.” The housing market continues to be a bright spot for the economy. The labor market also shows signs of improvement “with solid job gains and declining unemployment.”
However, the FOMC expressed concerns about the labor participation rate, which is at a 38-year low. The board also recognized that inflation is nowhere near its 2% target.
As such, the Federal Reserve reaffirmed its view that a federal funds rate of 0% to 0.25% is “appropriate.” It announced that this target range will remain in place until the Fed sees sufficient progress towards its objectives of maximum employment and 2% inflation. And, even once employment and inflation have reached their respective targets, the Fed may keep interest rates below normal levels.
Notably, there was no mention of a possible rate hike in September.
In this case, no news is good news. The accommodative Fed policy is a boon for the stock market. The ultra-low interest rates allow corporations to borrow very cheaply on the bond market and then use those proceeds to buy back their stock. And when companies buy back their stock this boosts earnings per share and oftentimes share prices.
So it is clear that the Fed’s latest announcement is what caused the benchmark indices to rally, if temporarily.