The Federal Reserve today kept interest rates unchanged and said it was cutting its plans for having four rate hikes to just two for the remainder of this year. The Fed also lowered its US GDP forecast from 2.4% to 2.2%. While the Fed acknowledged a strong job market it also cited a weakening global economy as cause for concern. The bottom line is that the Fed is dovish for now or is that “chickenish”?
The Dow reacted to the Fed’s move by going positive as energy stocks, gold and utilities took the lead. Banks fell because a rate hike would have been good for them but today’s Fed’s action was similar to the Seinfeld show where the soup nazi says “no soup for you!” At the close the Dow gained 74 points on heavy volume to 17,325. While the rally is back on the upside action appears to be focused in domestic utilities, pipeline and consumer staples which are all defensive investments.
Overall consumer inflation last month fell 0.2% thanks to a 13% drop in gasoline prices. If you strip out food and energy however, the “core” rate of inflation was up 0.3% due to increases in health care costs, rents and apparel.
WTI crude oil moved higher as the latest inventory build came in at 1.3 million barrels versus an expected 3.4 figure. Linn Energy also missed some bond payments and may face bankruptcy. The IEA is indicating that US production is poised to fall by the end of the year which could help erase some of the current 1 million barrel per day global excess. WTI closed up 6% to $38.50 per barrel.
Gold traded mixed ahead of the conclusion of the Federal Reserve policy meeting but when the results were in the price of gold jumped $32 an ounce to finish at $1,263 an ounce.