Stocks Rally as Federal Reserve Sticks to Interest Rate

January 31, 2019
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The United States Federal Reserve was at least partially responsible for the crippling volatility in the stock market last year. Aggressive rate hikes caused investors to question the strength of the economy and even the wisdom of Federal Reserve Chairman Jerome Powell.

2019 is shaping up to be a completely different story, with the Fed now much more dovish in its outlook. As some analysts had already predicted, the federal interest rate will now remain unchanged throughout this quarter.

Federal Reserve Likely to Be Much More Accommodative Throughout 2019

Jerome Powell was criticized heavily in 2018. Investors and even President Trump weighed in on the aggressive interest rate hikes that contributed to slides and reversals in the stock market.

The Federal Reserve claimed that it was taking all economic signals into account, and that it didn’t want to overcook the economy by keeping interest rates too low. While economists agreed with the strategy on some level, most considered that the rate hikes were too many and too high.

This year, the Fed will be much more conservative in its policy. It announced this week that rates will remain within a range of 2.25% to 2.50%, which effectively means that there will be no hikes for the time being. Perhaps even more importantly, the Fed has stopped referring to “gradual” rate hikes and has instead said that it will continue to be “patient as it determines what future adjustments to the target range for the federal-funds rate may be appropriate.”

This is some of the best news to come out of the Fed in months, as it indicates that Powell and his team will watch and respond to economic conditions rather than pursue their two slated rate hikes for this year.

Stocks Rallied Wednesday Following Fed News

Investors were more than pleased with the news from the Fed, and all major indexes rallied on Wednesday.

Ahead of Thursday trading, the Dow Jones Industrial Average is up 1.77%, the NASDAQ Composite is up 2.20%, and the S&P 500 is up 1.55%.

The start of this year hasn’t been completely smooth, but it’s definitely a huge improvement over Q4 2018. If strong confidence continues throughout earnings season, then the market could begin to reclaim ground that was lost in the leadup to Christmas.

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