Nobody expected the Federal Reserve to raise short-term interest rates Wednesday – and it did not. About 74% of economists surveyed by The Wall Street Journal said the Fed’s next interest-rate increase would come in December - and it might.
Between now and December, anything could happen but given the Fed’s reticence to raise rates so far, chances are the 74% are spot on.
Setting Lower Expectations
Another result of this week’s meeting was hinted at by Fed chair Janet Yellen who said, "Our decision does not reflect a lack of confidence in the economy. It's better to err on the side of caution."
As the result of that caution the Fed downgraded its forecast for economic growth for 2016 for the third time this year. Growth is now projected to be 1.8% versus the 2% growth forecast in June. Of 17 Fed members, 10 predict there will be only one rate hike the rest of this year.
Caution, it turns out, plays well in the market with stocks showing a rally following the Fed decision to hold off on a rate hike for now. Dow Jones closed 160 points higher and the S&P 500 gained 1.1%.(NYSE:NEMD) over on the S&P 500 was up 7.55% on volume of more than 11 million shares.
Oil Jumps As Stockpiles Shrink
Oil prices rose as fuel reserves dropped giving investors some hope, at least that supply gluts were easing off. According to the Energy Information Administration, oil inventories dropped by 6.2 million barrels and gasoline inventories decreased by 2.5 million barrels last week.
Overall, benchmark U.S. crude rose 2.9% to $45.34 a barrel. Brent crude, on the international side, rose 2.1% to $46.83 per barrel.
Good News For Some
Bad News For Others
Student loan management company, Navient Corp. (TSX:NAVIC) fell 3.7% to $13.28 on news federal regulators were investigating shareholder, Leon Cooperman for insider trading. Cooperman has denied the charges.
Skechers USA Inc. (NYSE:SKXC) dropped 9% following a downgrade from analysts at Morgan Stanley. Analysts said they believed the company would face a short-term disruption from changing trends in the athletic footwear industry.
Morgan Stanley cut its price target 40% to $25 per share, which is still above Skechers current price of about $21 per share.