Dovish Fed Drives Wall St Higher

By Glenn Dyer | More Articles by Glenn Dyer

Markets ended in the green on Wall Street after the US Federal Reserve did what was expected of it and kept its expansive monetary policy stance unchanged and promised to do what it had to keep the economy afloat.

In a statement after its latest two-day meeting, the US central bank linked the path of the world’s largest economy to that of COVID-19, saying the economy would “depend significantly on the course of the virus”, a statement ignored by investors.

That statement came as the US death toll from the virus topped 150,000.

The US had its biggest rise in its daily death toll on Tuesday as the number of deaths rose 10,000 in 11 days.

Wall Street had been expecting a ‘dovish’ statement from the Fed and that’s what it got.

So the Dow rose 160.29 points, or 0.61%, to close at 26,539.57; the S&P 500 was up 40.01 points, or 1.24%, to end at 3,258.45; and the Nasdaq added 140.85 points, or 1.35%, to 10,542.94 ahead of the Thursday afternoon release of quarterly reports from Apple, Amazon, and Alphabet.

That helped the overnight ASX 200 future market to a gain of 48 points, meaning a solid start to trading this morning after the index lost 14 points in a mixed day’s trading on Wednesday.

At his usual, after meeting media conference Fed Chair Jerome Powell said that the acceleration in COVID-19 infections is getting in the way of the economy recovering from the historic contraction in growth earlier this year.

“On balance, it looks like the data is pointing to a slowing in the pace of the recovery. I want to stress that it is hard to tell how sustained that will be,” Powell said at a press conference.

“We have seen some signs in recent weeks that the increase in virus cases and the renewed measures to control it are starting to weigh on economic activity,” Powell said in an online news conference.

The United States, he said, “has entered a new phase in containing the virus, which is essential to protect both our health and our economy.”

The Fed’s Open Market Committee made no significant changes to monetary policy, holding interest rates close to zero and pledging to do more to support the recovery if necessary.

The post-meeting statement noted economic activity and jobs “have picked up somewhat in recent months”

“Following sharp declines, economic activity and employment have picked up somewhat in recent months but remain well below their levels at the beginning of the year,” the Fed said. Overall financial conditions have improved in recent months also, the central bank also said.

Economists are worried because the latest unofficial data suggest the US economy is sagging again as cases of the virus increase, mainly in the South and West.

The central bank also kept the pace of asset purchase steady at $US120 billion a month. The Fed is buying $US80 billion of Treasuries and $US40 billion of asset-backed mortgage securities to support the economy.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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