The Federal Reserve’s announcement that it will no longer increase its benchmark interest rate, was met with a mixed reaction from the markets on Tuesday.
The stock market rose, with the Dow Jones Industrial Average ending the day 1.3 percent, and the S&P 500 1.1 percent. The 10-year U.S. Treasury yield also rose, coming to a multi-month high of 1.6 percent.
However, some investors were not as elated as others by the news. The U.S. dollar weakened against other major currencies, with the euro jumping 0.8 percent against the greenback to a session high of 1.0888. Meanwhile, gold jumped 1.3 percent to a session high of $1,542.75 an ounce, as investors saw the value of safe-haven assets rise.
The Federal Reserve held its key interest rate unchanged between 1.25 percent and 1.5 percent as expected. The central bank also announced that it would be winding down its reserve assets that were accumulated during its quantitative easing program. The move was seen as a sign of confidence in the U.S. economy, as the Federal Reserve believes that current declining inflation was caused by temporary factors, and not structural issues.
Economists have weighed in on the news, with some contending that the market’s reaction to the Fed announcement is an indication that the central bank is not going to move interest rates in the near future. Others have suggested that the Federal Reserve may still choose to hike interest rates if inflation picks up in the next six months.
Overall, the markets responded positively to the Fed’s announcement, with some investors viewing the move as a sign that the U.S. monetary policy will remain accommodative and supportive of U.S. economic growth. As investors assess the news in the days ahead, it will be interesting to see how long the positive reaction to the Fed’s announcement lasts.