The Fed Shows Little Inclination To Support More Stimulus

Asian and European equities traded lower on Wednesday partly due to yesterday’s minutes from the U.S. Federal Reserve that suggested the Central Bank is less likely to support more economic stimulus for the U.S. economy in the near future.

The Fed’s comments signaled that it was less likely the central bank would intervene to help the markets unless U.S. growth slows or prices rise at a rate slower than its 2 percent inflation target.

The dollar strengthened on the news that the Federal Reserve may resist using monetary stimulus to further boost the U.S. economy.

The price of gold dropped on Tuesday after the Federal Reserve said inflation appears to be under control. Gold investors often buy gold as a hedge against inflation.

Last month the Fed affirmed its plan, announced earlier in January, to hold  interest rates near zero through late 2014 since the economy might fail to grow fast enough to lower the unemployment rate. 

The Fed minutes indicated that there is a “non-negligible risk that improvements in employment could diminish as the year progressed.”

The U.S. unemployment rate has fallen nearly one percentage point since last summer to 8.3% while U.S. employers added an average of 245,000 jobs a month from December through February.

Operation Twist, a re-balancing monetary policy that involves the Fed shifting their purchases of $400 billion of short-term bonds into longer term bonds, is set to expire in June.

Some economists believe that the Fed will be more likely to consider supporting further stimulus measures for the U.S. economy after Operation Twist expires in June.

Other Economic Data

Yesterday’s report on factory orders for February came in below expectations after the report said activity picked up by 1.3% compared to estimates of 1.4%.

January factory orders lowered by 1%.

U.S. auto sales jumped more than 15 percent in March, the best quarter for U.S. vehicle sales since 2008.

Investors are waiting for an interest rate announcement from the ECB in Europe which is due today.

ECB President Mario Draghi is expected to keep rates unchanged at the rock bottom level of 1%.

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