US markets recorded marginal gains as Fed policy meeting ended

Yesterday Federal Reserve issued a policy statement pledging to keep low interest rates for “considerable time” while indicating the rate increase will be steeper as Fed starts credit tightening. So the policy makers kept the language and commitment to keeping interest rates near zero for a “considerable time” after the end of asset purchases. Fed Chair Janet Yellen explained the decision by telling the reporters that the economic outlook hadn’t changed all that much over the last few months. At the same time the policy makers raised their rate forecast for coming years, raising the median forecast for the benchmark rate at the end of 2015 to 1.375 percent from June’s estimate of 1.125 percent. They projected the rates will increase by more than 2 percent in two years after that, providing their first estimate for the rate for the close of 2017 at 3.75 percent. Federal Open Market Committee also decided to reduce monthly bond purchases by $10 billion, this time to $15 billion. They also said they expect to end the asset-buying program next month. Federal Reserve statement revealed also the details of the exit strategy for the transition to more expensive credit. The policy makers said their main tool for tightening credit will be changes in the interest rate Fed pays commercial banks for excess reserves they hold with the central bank. The overnight reverse repurchase agreements will be used as a supplementary instrument to withdraw liquidity from money-market funds. After the Fed meeting the US markets moved higher but then retraced and trimmed gains by the end of session, closing slightly higher from previous day. The S&P 500 (SPX) rose 2.59 points, or 0.1% to 2.001.57. The Dow Jones Industrial Average (DJI) added 24.88 points, or 0.2% to a record high 17,156.85. The Nasdaq Composite (RIXF) gained 9.43 points, or 0.2%, to 4,562.19. 

Oil kept falling as US oil output surges to highest since 1986 and US inventories rose. The horizontal drilling and hydraulic fracturing has allowed US producers to tap shale oil formations in Central US. The boom in shale oil production, together with the restart of Alaskan oil production after a pipeline shutdown and the upward revision of Gulf of Mexico production figures with no hurricane occurrences yet drove oil output to 8.838 million barrels a day, a 248,000 barrels increase. The US Energy Information Administration report showed the US inventories gained 3.67 million barrels in the seven days ended September 12, against an expected 1.5 million barrels drop. Brent for November settlement fell 22 cents to $98.83 a barrel on the ICE Futures Europe exchange. Volume was 1.6 percent below the 100-day average. The European benchmark crude was at a premium of $5.55 to WTI on ICE for the same month. It closed at $5.24 yesterday. 

Gold lost almost 1 percent Wednesday. Spot gold XAU closed $11.95 lower from Tuesday’s $1234.94 an ounce, reversing the half percent upward correction recorded in the first two days of the week. As US Federal Reserve policy makers released their projections for a steeper interest rate hike after the end of monetary easing, gold slumped further today to its lowest in eight and half months since January 2. It fell to $1216.01 an ounce but recovered to $1224 by 06:24 GMT. Gold is under pressure as US dollar is gaining strength, a situation which is here to stay with improving outlook for US economy.