The Federal Reserve just released its latest policy statement, and it looks like more of the same when it comes to interest rates and quantitative easing. The statement said the economy was expanding at a "modest" pace, which is apparently a downgrade from "moderate" in June, and there's concern about both inflation and mortgage rates going forward. Inflation has been below the Fed's 2% objective for about a year now, and a jump in mortgage rates over the past three months has slowed home-buying and may also slow the economy if rates move even higher.
US Inflation Rate data by YCharts.
The market reaction was volatile at about 2 p.m. EDT, but with half an hour left in trading, markets have decided to move higher as traders cheer more easy money. The Dow Jones Industrial Average (^DJI -0.65%) is up 0.27%, while the S&P 500 (^GSPC -1.20%) has gained 0.45%.
Bank of America (BAC 0.45%) and JPMorgan Chase (JPM 0.06%) are up 1.7% and 1.4%, respectively, on the rate news. Banks get to borrow funds at short-term rates and loan them out at long-term rates to make a profit, and the continuation of low short-term rates still seems to have no end.
Long-term Treasury yields, which mortgage rates are tied to, also moved higher today after data showed 1.7% growth in the second quarter. The gain in rates subsided as the day went on, but the long-term trend is clearly higher, and that allows banks to make more profit on the spread between short-term and long-term rates. Today, that's helping both Bank of America and JPMorgan outpace the Dow.
The one Dow component moving significantly lower today is American Express (AXP 0.09%), which may be facing the prospect of lower swipe fees in the future. Today, a judge rejected the Fed's regulation setting a cap of $0.21 per debit card transaction. The judge said the Fed disregarded Congress' intent and threw out the rule. It will remain in place until a new rule can be drafted, which will presumably come with lower fees.
