European Stock Market Rally Fades as Fed Left Interest Rate Unchanged
European stock markets ended the four days winning streak as the US Federal Reserves has indicated that interest rate will remain low for a longer time. The Fed has kept its interest rate around zero range and hinted it to stay at the current level for the next three years.
The fed is looking to improve economic growth, with the main focus on improving the employment level in the coming years. On the positive side, fed is now seeing lower than expected economic impact of coronavirus spread.
“With regard to interest rates, we now indicate that we expect it will be appropriate to maintain the current zero to 0.25% target range for the federal fund’s rates until labor market conditions have reached levels consistent with the committee’s assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time,” said Fed Chairman Jerome Powell.
Fed expects this year’s GDP to fall by 3.7%, down almost by half when compared to the previous forecast for the drop of 6.5%.
In addition, they expect better employment levels by the end of this year compared to earlier expectations. The Fed projects an unemployment rate to stand around 7.6% this year from a previous forecast of 9.3%.
The pan-European Stoxx 600 finished Wednesday trade higher, thanks to strong gains from mining and auto stocks. European stock futures are in red on Thursday. The financial sector is among the biggest losers due to the fed’s low-interest-rate policy.
US dollar soared following the fed’s press conference. The USD index, which tracks the US dollar against the basket of six major currencies, surged to 93.17 level. The index plunged below 93 levels on Tuesday.
What Does it Mean for Investors?
- Companies and consumers will get a loan at a lower rate, which will improve the employment level.
- Stocks are likely to bounce back as easy loan policies are better for struggling corporations.
- Oil prices bounced back on improving economic numbers.