Eagle Eyes on the Fed

by Alejandro Fernandez
March 17, 2010

Federal Open Market Committee

NEW YORK, NY- Today all eyes were on the Federal Reserve to see the decision on the key interest rates and how the economy was doing. The Feds left the key interest rates at 0.25 almost at zero and stated that economy activity has continued to strengthen.

They stated that the interest rates will continue to stay this low for the future unless there is a big concern with inflation. The Fed is concerned with having prices in check and if prices are stable then there is no need for interest hikes. Although this could create problems/bubbles in the financial markets by having interest rates low for much time because businesses and people depend on the interest rate for incentive to loan money out and as stated by the Feds bank lending has continued to contract.

Apart from this the Federal Open Market Committee stated that economic conditions are better through which the job market is stabilizing. They also said that household spending is increasing at a moderate rate through constraints of unemployment, modest income growth, tight credit and low household wealth.

Ben S. Bernanke also declared that housing has been flat both in investment and starts, but business spending has increased for equipment and software. Employers remain inclined to not add employees, but job market stabilizing and that economic pace will carry on moderately with gradual return to higher levels of resource utilization in a context of price stability.

FOMC-Reaction in the Markets

The stock market rose soon after the interest rate decision and the dollar fell with gains to the euro.  With low interest rates people are less will to have their money in the bank where they will make less due to low interest rates compared to the stock market where one can have more returns. The euro increased for the same matter as the interest rate is remained low at 0.25% and the euro interest rate is at 1.00%, well let’s just say you get more for your money at 1 percent than you do with 0.25 percent. The euro should gain some room from this but not a lot due to the fact that currency market rely on economic condition of countries and as the U.S. stabilizes and the E.U. is still having problems with Spain, Portugal, Ireland and Greece with their account deficits and defaults.

DOW stands at 10,685.98 gain of +43.83

Nasdaq stands at 2,378.01 gain of +15.80

S&P500 stands at 1,159.46 gain of +8.95

Euro/USD 1 Euro=1.376 dollars

Oil/barrel stands at 81.83 dollars gain of 0.91 cents USD

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Alejandro Fernandez

Fernandez is a senior Economics and International Business major at the University of Texas at El Paso. He is the president of the University Investment Club. He plans to go into either investment banking or economic research after receiving his BBA.