'Fed Effect' Boosts Dow Jones... Gold and Long-Term Treasury Bonds Weaken (Comprehensive)

Fed's Average Inflation Targeting Introduction Shakes Financial Markets
Dollar Plummets Then Recovers Previous Day Level
Bank Stocks Rally on Expectations of Rising Market Interest Rates

[Image source=EPA Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] Although the U.S. Federal Reserve (Fed) announced an average inflation targeting policy, the financial market's reaction was mixed. The New York stock market showed a mixed trend, the dollar remained largely unchanged, while gold prices and long-term government bond prices plummeted.

On the 27th (local time), the Dow Jones Industrial Average rose 160.35 points (0.57%) to close at 28,492.27, the S&P 500 index increased by 5.82 points (0.17%) to 3,484.55, and the Nasdaq index fell 39.72 points (0.34%) to close at 11,625.34.

Gold prices closed at $1,932.60 per ounce, down 1% ($19.90). The dollar index, which shows the value of the dollar against major currencies, plunged into the 92 range during the day due to the Fed announcement but later stabilized around 93.01, similar to the previous day’s level.

Government bond yields varied depending on maturity. For U.S. Treasury bonds, short-term yields such as 1-month, 3-month, and 2-year bonds did not show significant increases, but the 10-year yield rose by 0.067 percentage points and the 30-year yield increased by 0.104 percentage points, showing considerable volatility. An increase in bond yields means a decline in bond prices.

The market closely watched the average inflation targeting policy announced by Jerome Powell and the Fed. This policy allows inflation to exceed 2% for a certain period, deviating from the previous monetary policy of managing inflation within 2%. It is interpreted as prioritizing employment in monetary policy and signaling a long-term opportunity in the zero interest rate era.

A Wall Street insider commented, "The market's reaction was mixed after the Fed's announcement. Some investors appeared to take profits as this was already anticipated." He explained that the decline in long-term government bond prices reflected expectations of rising inflation. Although the dollar sharply dropped immediately after the Fed announcement, it recovered losses due to optimism about economic recovery.

As market interest rates rose, bank stocks also showed strength. The largest U.S. bank, JPMorgan Chase, posted gains in the 3% range.

Leading tech stock Apple fell 1.2%, leading the overall weakness in tech stocks such as those on the Nasdaq. Walmart announced it is cooperating with Microsoft to acquire the Chinese video-sharing app TikTok, causing its stock price to rise 4.55%.

The U.S. Department of Labor announced that initial jobless claims last week decreased by 98,000 from the previous week to 1,006,000, roughly in line with the Wall Street Journal’s forecast of 1 million.

The U.S. second-quarter gross domestic product (GDP) growth rate was preliminarily recorded at an annualized -31.7%, an improvement from the previously announced flash estimate of -32.9%.

International oil prices closed down 0.8% ($0.35) at $43.04 per barrel. The damage caused by Hurricane Laura was less than expected, raising hopes that oil production facilities in the Gulf of Mexico will soon resume operations.

This content was produced with the assistance of AI translation services.