Fed Extends Near Zero Rate to Late 2014, Greek Talks Drag

Bikram Pandey
25 Jan, 2012
New York City

The U.S. indexes traded higher after the Fed extended near zero interest rate policy to late 2014 and estimated subdued inflation for two more years. The rate setting committee members also estimated unemployment to decline slowly.

[R]4:00 PM New York – The U.S. indexes traded higher after the Fed extended near zero interest rate policy to late 2014 and estimated subdued inflation for two more years. The rate setting committee members also estimated unemployment to decline slowly.[/R]

The Federal Reserve extended its forecast for low interest rate by nearly two years and does not see an improvement in unemployment soon.

The Federal Reserve said on Wednesday that it intends to hold its short term interest rates near zero as far as “late 2014” and signalled that the economic recovery will take longer than two more years.

The rate setting committee said in a statement after two-day meeting that the unemployment is expected to remain elevated “while indicators point to some further improvement in overall labor market conditions.”

The Fed later released its forecast of inflation, economic growth and unemployment for next three years. The members of rate setting committee estimated economic growth in 2012 to be between 2.2% and 2.7%, between 2.8% and 3.2% in 2013 and between 3.3% and 4% in 2014.

The committee also estimated unemployment rate to hover between 8.2% and 8.5% in 2012 and decline to between 7.4% and 8.1% in 2013 and drop to between 6.7% and 7.6%.

The inflation is estimated to be between 1.4% and 1.8% in 2012 and edge higher to between 1.4% and 2% in 2013 and between 1.6% and 2% in 2014.

The U.S. indexes fell after Boeing issues cautious outlook and tech stocks gained after Apple Inc reported a surge in earnings. U.S. mortgage applications slid last week. Motorola Solutions quarterly net slips and Abbott Labs quarterly sales miss estimates.

Apple first quarter net more than doubled to $13.1 billion and Abbott Labs net increased 12.3% to $1.6 billion. ConocoPhillips fourth quarter net increased to $3.4 billion. Boeing fourth quarter net increased 20% to $1.39 billion and WellPoint fourth quarter net declined 39% to $335.3 million.

European markets declined after mixed corporate earnings as Germany sold 30-year bonds amidst strong demand. UniCredit plans to raise up to €25 billion by way of covered bonds and E.On plans to cut 11,000 jobs worldwide.

German confidence rose for the third month in a row in January and Spanish producer price index slowed in December. Retail sales in Hungary improved but in Italy fell in November.

The UK indexes edged lower after the economy contracted in the fourth quarter, services index increased more than anticipated in November and mortgage approvals rose in December. HSBC agreed to sell its retail banking and wealth management business in Thailand.

Stocks in Tokyo trading extended gains for the seventh day in a row as resources and merchant fleet operators led the gainers. Japan reported its first trade deficit as imports surge and exports struggle after natural disasters.

Australian stocks gained after inflation in the December quarter was flat and trailed expectations. For the year 2011, inflation increased 3.1%. Rio Tinto confirmed its majority stake in the Canada based Ivanhoe Mines that is active in Mongolia.

Commodities, Bonds and Currencies

The yield on 10-year U.S. bond decreased to 1.94% and 30-year bond closed down at 3.08%.

The U.S. dollar traded flat to $1.309 to one euro and traded higher against the Japanese yen to 77.65.

Immediate delivery futures of Texas crude oil increased $1.11 to $100.06 a barrel and futures of natural gas rose 11 cents to $2.85 per mbtu and gasoline price increased 5.1 cents to 285.63 cents a gallon.

In metals trading, copper increased 3.6 cents to $3.84 per pound, gold increased $36.90 to $1,701.00 per ounce and silver increased $1.22 to $33.20.