Fed keeps interest rates unchanged, market’s rally
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The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent. According to the press release, Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports. However, the committee echoed concerns over a softening labor market.
The unemployment rate for July rose to 5.7 percent as reported by the Bureau of Labor Statistics, and nonfarm payroll employment continued to trend down in July (-51,000). Employment continued to fall in construction, manufacturing, and several service-providing industries, while health care and mining continued to add jobs. Average hourly earnings rose by 6 cents, or 0.3 percent, over the month.
Wall-street rallied on the news that interest rates were unchanged.
| S&P 500 | 1,284.88 | +35.87 | +2.87% |
| Dow | 11,615.77 | +331.62 | +2.94% |
| Nasdaq | 2,349.83 | +64.27 | +2.81% |
Falling crude prices also helped soothe Wall Street’s nerves - crude traded at $118 a barrel before settling at $119.17, down $2.24 on the New York Mercantile Exchange. Oil has now fallen $28 from its July 11 high of $147.27 on expectations that the slumping U.S. economy will curb consumer demand for gasoline and other petroleum products.
Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters. The FOMC expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain. Inflation has been high, spurred by the increases in the energy prices. The energy index for 2008 is up 29% as reported by CPI numbers for June.
