Federal Reserve, Dow Futures, and Main Findings

On Wednesday, Federal Reserve Chairman Jerome Powell made it clear that the central bank has no intention of raising interest rates until 2022 or 2023. Interestingly, futures contracts tied to the major U.S. stock indexes rose in the overnight session on Wednesday, thanks to Federal Reserve’s announcement. It is worth noting that Jerome Powell reiterated that the Federal Reserve wants to see inflation consistently above its 2% target.

He also mentioned that the central bank wants to observe material improvement in the U.S. labor market. Only after taking into account all factors mentioned above, the bank will consider changing rates or its monthly bond purchases.

Dow futures added more than 100 points and suggested a gain of similar magnitude on Thursday. Interestingly, the S&P 500 and Nasdaq 100 futures added 0.3% and 0.4%, respectively.

The Federal Open Market Committee (FOMC) shares the market’s view that growth and inflation are likely to rebound in 2021. However, it does not view that surge in activity as durable.

Federal Reserve and U.S. stocks

It is worth noting that the after-hour moves came after a late-day equity market pop during Powell’s remarks. Interestingly, the upswing pushed the Dow Jones Industrial Average to its first close above 33,000 with a gain of 189 points.

Moreover, the S&P 500 notched a record close and rose 0.3% to 3,974 after dropping 0.7% earlier in Wednesday’s session. Also, the Nasdaq Composite, which fell as much as 1.5%, wiped out early losses. It ended the day 0.4% higher at 13,525.20. As a reminder, the tech-heavy benchmark was under pressure Wednesday morning as rising bond yields sapped growth stocks.

Importantly, announcements from the Federal Reserve and its leader dictated trading on Wednesday. This comes after the central bank upgraded its economic outlook. The central bank upgraded the outlook to reflect expectations for a stronger recovery while simultaneously quelling investors’ concerns. According to the Federal Reserve, it expects to see the gross domestic product grow 6.5% in 2021. Moreover, the central bank’s stated goal is to keep inflation at 2% over the long run.

It is worth noting that Powell managed to convince traders that the Federal Reserve would need to see material and sustained move upward in prices as well as a sharp drop in unemployment before debating changes to its current easy policy position.

As stated above, the Federal Reserve has no intention to raise interest rates in the nearest future.