The Federal Reserve has begun to take notice of the improving U.S. economy. It left its key interest rate unchanged, as expected, but shifted the language in its monetary policy statement to acknowledge recent gains in U.S. payrolls.
“Labour market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated,” the Fed said in its statement released on Tuesday afternoon.
Meanwhile, the Fed also said that strains in global financial markets have eased, even as they continue to pose significant downside risks.
This relatively upbeat view could have investors feeling a touch nervous about where the Fed stands on a new round of economic stimulus and whether it still sees the need to maintain exceptionally low interest rates through 2014, as it indicated in its January statement. The commitment remained in Tuesday’s statement, with the Fed reiterating that economic conditions “are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”
Investors seem to like the reappearance of the commitment: The S&P 500 was up 11.6 points, or 0.9 per cent, just as the statement was released. Minutes later, the broad index had increased its gains to 13.7 points, or 1 per cent.
Then again, given a choice between a weak economy and Fed stimulus and a stronger economy that might not need any stimulus, perhaps investors are feeling okay with a stronger economy.