By
Bhushan Akolkar
April 17th, 2024
With the new approach to inflation, the Fed aims to support the labor market and broader economy by keeping interest rates lower for a longer period of time.
On Thursday, the three major U.S. stock indexes soared to reach new intraday highs. All the Dow Jones Industrial Average (INDEXDJX: .DJI), S&P 500 (INDEXSP: .INX), and Nasdaq Composite (INDEXNASDAQ: .IXIC) were boosted by the Federal Reserve that laid out a new monetary policy. According to the Fed Chairman Jerome Powell, the central bank would seek inflation that averages 2% over time. Besides, the Fed adopted a new strategy that reflects its “view that a robust job market can be sustained without causing an outbreak of inflation.”
What’s Up on the Market?
The Dow Jones Industrial Average rose 0.57%, or 160.35 points on Thursday to close at 28,492.27. Its intraday high totaled 28,633.85. The S&P 500 climbed 0.23% to 3,481 after the opening bell and by the end of the session, added 0.17% to 3,484.55. The Nasdaq Composite, which closed at a record on Wednesday, hit an all-time intraday high of 11,730.01. It dropped by 39.72 points, or 0.3%, to close at 11,625.34.
Today, analysts are expecting the Dow Jones to open 51 points lower at 28,281, the S&P 500 is set open at around 3,475, down 4 points. As for the Nasdaq Composite, it has all chances to open around 110 points higher today at 11,975.
New Inflation Policy Introduced by the Fed
The indexes soared immediately after the Fed announced new inflation policy. In particular, its Chairman Jerome Powell said they formally agreed to a policy of “average inflation targeting”. In other words, the inflation will run “moderately” above its 2% goal for “some time”.
For years, the Federal Reserve has been struggling to keep inflation at 2%. This level is indicative of a healthy economy. However, since the financial crisis started, inflation has not lagged this target.
With the new approach to inflation, the Fed aims to support the labor market and broader economy by keeping interest rates lower for a longer period of time.
Jerome Powell said:
“Employment can run at or above real-time estimates of its maximum level without causing concern, unless accompanied by signs of unwanted increases in inflation.”
City Index’s Fiona Cincotta commented:
“Whilst Jerome Powell is the star performer, warm-up acts in the form of US GDP data (2nd revision) and initial jobless claims will also be in focus.
“US GDP is expected to see a very slight downward revision to 32.6% from 32.9%. Initial jobless claims could garner more interest. Last week they rose back above 1 million, potentially the first sign of trouble after the Federal additional $600 unemployment benefit expired. Should claims remain over 1 million pressure will ramp up on Congress to agree to an additional rescue package,” continued she.
The Fed’s decision could benefit both investors and markets. The recovery from the pandemic will be long, but seems that the Fed is ready to deploy all its tools and adapt to the challenging economic environment.