The immediate market reaction to Fischer’s comments sent stock prices down slightly and pushed the dollar up – signals that traders were interpreting Fischer’s remarks as boosting the likelihood of a September rate hike.
The two indexes lost about 12 percent for the month, and almost 40 percent since mid-June despite repeated and unprecedented measures by the government to shore up the market. But he stressed that the Fed is watching how events unfold following the surprise August. 11 move by China to devalue its currency. Hundreds of billions of money was wiped out and, then gained back in stock markets worldwide last week as investors were terrified about a possible slowdown in the the world’s second-largest economy. Trading volume, which typically slows in summer, spiked.
Many worry that the drop in commodities and a strong U.S. dollar will put pressure on inflation and that the bank will not be able to reach its 2 percent goal.
On Monday the declines were relatively modest. The S&P 500 index showed no new 52-week highs and no new lows, while the Nasdaq recorded nine new highs and eight new lows. Phillips 66 (PSX) rose 2.4 percent after Warren Buffett’s Berkshire Hathaway (BRK-B) disclosed a $4.48 billion stake in the oil refiner.
US crude was down 0.8% at $44.86 a barrel after jumping more than 6% Friday on frenetic short-covering fuelled by violence in Yemen, a storm in the Gulf of Mexico and refinery outages. Investors had recently trudged through a corporate earnings season which delivered only meager profit growth. “We still need to see earnings growth or valuations improve, and absent that, it’s hard to see how the market can move up”.
Things are not likely to change in September.
The Fed’s Open Market Committee is scheduled to meet September 16 and 17 and most economists believe that it will begin to raise interest rates, which have been at near zero since the 2008 financial crisis. “Many investors have long awaited signs that China was on the verge of implosion”, said Bob Doll, chief equity strategist at Nuveen Asset Management.
Both the Federal Reserve and the Bank of England are planning to tighten monetary policy in the near future. However, his statements as a whole seem to suggest that they will not changes their current plans to raise interest rates this year.
Fischer told the conference that Fed officials are closely monitoring developments in China and studying the latest data on the US economy.
ASIA’S DAY: worldwide markets were volatile once again.
At 10:30 a.m. (1430 GMT), the Dow Jones industrial average was down 114.72 points, or 0.69 percent, to 16,528.29, the S&P 500 had lost 13.24 points, or 0.67 percent, to 1,975.63 and the Nasdaq Composite had dropped 28.79 points, or 0.6 percent, to 4,799.53. According to a report released by the US Commerce Department it was reported that spending rose by 0.3 percent in July, helped largely by the purchase of big ticket items such as cars.