Fed’s Powell May Usher in Lower Rates for Longer

Nasdaq 100 Price Outlook:

Nasdaq 100 Forecast: Fed’s Powell May Usher in Lower Rates for Longer

The Nasdaq 100 whipsawed after Fed Chairman Jerome Powell offered his remarks at day one of the Jackson Hole symposium. Stocks were not alone in experiencing volatility as gold, treasuries and the US Dollar swung back and forth after the speech. All in all, the decision from the Federal Reserve to change their inflation mandate from a fixed 2% target to an average may allow for inflation above 2% to take hold for extended periods of time.

Nasdaq 100 Price Chart: 1 – Minute Time Frame (August 27, 2020)

In turn, lower interest rates may also remain while inflation rises. The intended goal is to allow unemployment to taper off while inflation rises instead of immediately moving to raise interest rates in a budding economy just because one measure has become overheated. To be sure, prolonged periods of lower interest rates may continue to provide an encouraging backdrop for the US equity market, but some analysts have begun to question whether this atmosphere will have negative effects down the line.

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The Nasdaq 100 has climbed nearly 35% in the year-to-date despite a global pandemic and a looming US Presidential election combining to create immense uncertainty. With the Fed firmly behind them, many stocks – particularly the Nasdaq’s high-flying tech stocks – have pressed ever higher and some investors have warned this growth is artificially sourced from the central bank.

Nasdaq 100 Price Chart: 4 – Hour Time Frame (April 2020 – August 2020)

Nasdaq 100 Forecast: Fed's Powell May Usher in Lower Rates for Longer

Whatever the longer-term effects of this shift in policy are, the immediate future for the Nasdaq 100 has undergone little change from a technical perspective. Price still wades at the top of its range while a long lower wick exhibited in recent price action could suggests bull are comfortable maintaining price at this level and bears may yet lack conviction.

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Consequently, price will have to display a convincing push in either direction before conclusions can be made as to the impact of the monetary policy tweak outside of what traditional economics might suggest. That said, one immediate – and welcome – change has been an increase in volatility. As August winds to a close, volatility may continue to rise as the market bids farewell to the summer doldrums.

–Written by Peter Hanks, Strategist for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

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