US economy

Wall Street higher after Fed’s balance sheet, inflation remarks


US stocks and Treasuries were comfortably higher at midday on Friday as the Federal Reserve signalled it will hold a much larger balance sheet in the long term than it did before the financial crisis, helping ease investor concerns about tightening financial conditions.

The Fed said in its semi-annual report to Congress it did not expect to reduce its balance sheet to pre-crisis levels thanks in part to a desire by commercial banks to hold extra reserves following the crash. The news further underlines the more dovish stance taken recently by the Fed, which last month decided to keep interest rates on hold and to signal an end to its efforts to reduce its balance sheet, which had spooked some markets.

Meanwhile, New York Fed president John Williams warned during a press conference in Manhattan that persistently weak inflation readings risk damaging the Fed’s ability to anchor inflation expectations at its target level.

The S&P 500 was up 0.6 per cent — with information technology and communication services each up more than 1 per cent. Financials and consumer staples were the only two sectors in the red.

The Dow Jones Industrial Average rose ⅔ of 1 per cent and the tech-heavy Nasdaq Composite was up ¾ of 1 per cent.

Treasuries surged as yields fell. The yield on the benchmark 10-year note dropped 4.7 basis point to 2.6411 per cent and that of the two-year, which is more sensitive to Fed policy expectations, was down 4.4 bps to 2.502 per cent.

Newmont Mining was among top gainers in the S&P 500 after Canada’s Barrick Goldconfirmed on Friday it had “reviewed the opportunity” to merge with the rival miner but said no decision had been made.

Meanwhile Kraft Heinz was the top loser, plunging 28 per cent, after the food company revealed it had received a subpoena from the US Securities and Exchange Commission related to its accounting policies.

Investors continue to watch for signs of progress from the latest round of trade talks between US and Chinese officials in Washington. An agreement between the pair needs to be reached before a March 1 deadline when US administration originally sought to increase tariffs on $200bn worth of imports from China to 25 per cent from 10 per cent.

The DYX index, which tracks the greenback against a weighted basket of global peers, was flat at 96.56.



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