U.S. Indexes Gain Slightly as Federal Reserve Alludes to Year-End Rate Increase

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Jun 21, 2015

Financial market indexes in the U.S. pushed higher for the week after the Federal Reserve’s Federal Open Market Committee alluded to a potential increase in the federal funds rate at the end of the year.

On Wednesday, the Federal Reserve’s Federal Open Market Committee announced that it would keep the federal funds rate unchanged at its current level of 0% - 0.25%. The focus for the FOMC’s decision continues to remain on U.S. employment and inflation.

In comments following the two-day policy meeting, Janet Yellen looked to the end of the year as a potential time for the first rate increase. Her comments focused the attention on the initial rate increase suggesting that while projections point to continued increases through 2017 it may not be necessary to increase rates steeply if economic conditions do not warrant continued increases. While the initial sentiment is for a gradual increase in the level of the federal funds rate over time the FOMC’s projections show the rate increasing from approximately 0.75% at the end of 2015 to as high as 3.75% by 2017.

Economic conditions appear to call for a cautious approach to the rate increase and further caution in continued increases. The labor market has currently been the greatest catalyst for economic growth with the unemployment rate reported at 5.5% in the most recent report for May. However inflation has lagged considerably due to energy prices and the effects of the strengthened dollar. In the most recent report from the Bureau of Economic Analysis, the one-year inflation rate for April was 0.1%, increasing to 1.2% when excluding food and energy.

Energy prices and international trade effects also continue to drone on the country’s gross domestic product. For the first quarter the Bureau of Economic Analysis has reported a -0.7% seasonally adjusted annual rate of growth for GDP.

Following the Fed meeting U.S. financial market indexes pushed slightly higher for the June 19 week after ending negative for the first two weeks of June. The Dow Jones Industrial Average was up 0.60% for the week led by Nike (NKE, Financial) up 2.65% for the week. The S&P 500 gained 0.62% led by the healthcare sector up 1.71% for the week. Meanwhile, the technology sector continued to report considerable gains. For the June 19 week the NASDAQ was up 1.17% bringing its year-to-date total return to 8.03%.