Facade of Federal Reserve Building in Washington DC

The Dow Jones index took a nosedive on Monday ahead of the Fed’s interest rate decision. The index declined by more than 0.30%. Other indices like S&P 500 also dropped by more than 0.15% while Nasdaq gained more than 0.25%.

US Inflation Concerns

The Dow Jones index will react to the Fed’s interest decision to be released later this week. The Federal Reserve policy makers will hold a meeting on Tuesday and Wednesday to discuss the United States’ economic recovery. Investors are eager to get clues on what the Fed thinks about inflation, bond purchases and future interest rates.

The Fed is closely watching the US economy to gauge the country’s proximity to reaching their maximum employment. The US central bank’s rate-setting committee, Federal Open Market Committee (FOMC), is yet to finalize on the monetary policy.

June’s meeting will include new economic projections by the committee and members’ updated predictions for growth and inflation.

According to Fed chair, Jerome Powell, the United States has recorded uneven recovery in certain sectors most especially in the employment sector. Fed policy makers have said that the employment market is still a long way from full stability.

Black and Hispanic Americans have recorded a lower employment rate than White and Asian Americans. The employment to population ratio for white Americans was 3% below the pre pandemic levels while that for Asian Americans fell by 2.8%. However, for the black Americans, their ratio was 3.9% while that for the Hispanic Americans was 4.5% below February 2020.

According to economists, Fed officials could project an interest rate liftoff in 2023 amid faster inflation and economic growth. The US strong economy challenges the central bank’s commitment not to tighten monetary policy.

The headline Fed funds rate has been 0.25% since March 2020. It also acquired more than $7.9 trillion assets on the central bank’s balance sheet. This was 90% higher than the pre pandemic. The FOMC is only expected to adjust purchases after full recovery in the economy.

Investors are waiting for this week’s initial jobless claims data. The unemployment rate is expected to fall 4.7% by the fourth quarter of this year. Employment opportunities are also expected to increase this month with the easing of lockdown restrictions.

Dow Jones Movers

Among the best performers in the Dow Jones index include Salesforce.Com Inc, Apple Inc and Chevron Corp. Salesforce.Com Inc gained more than 2.2% after the company recorded a $11.55 million gain in a day. The company purchased $75 million worth of stock in Israeli software company. Apple Inc gained 1.4% while Chevron gained more than 0.7%.

Some of the drags in the index include Walgreens Boots Alliance, Cisco Systems and Home Depot. Each company dropped by more than 1.2%.

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