The Federal Reserve has been a major topic of discussion for investors for quite some time now, and it all revolves around the United States interest rate. Today, the Fed ended this month's FOMC meeting, where they were discussing whether or not to increase their rate. Ultimately, they decided against doing so. Today, we'll talk about why the Federal Reserve is keeping its low interest rate unchanged, how the market reacted to the news and how binary options traders can take advantage of the trends moving forward.
Why The Federal Reserve Decided Not To Increase Its Interest Rate
To understand why the Federal Reserve decided against increasing its rate, it's important to understand why the rate is low in the first place. During the economic crisis of 2008 and 2009, the Federal Reserve had to find a way to stimulate economic growth. To do so, they reduced their rate. In doing so, consumers and businesses alike would spend less money on interest, leaving more money available for spending activities that would help the US economy to grow. Therefore, in order to increase their interest rate, the Fed needs to be sure that the US economy can withstand the rate hike. Unfortunately, they cannot be sure of that at the moment.
The reality is that the United States economy, like just about every other economy is heavily dependent on growth in other regions. When other regions struggle, consumers in those regions can't afford to purchase United States based products and services, which causes the US economy to struggle as well. So, one of the major issues at the moment is the slowing pace at which the global economy is growing. However, the reason for the rate hike delay goes far beyond global economic conditions. The US has plenty to worry about with regard to its own economy.
When it comes to the local economy in the United States, what were positive conditions early in the year are starting to become concerning. The reality is that consumers simply aren't spending as much money as they should be, new home sales are starting to falter and jobs reports are showing grim results. Sure, exports are a concern, but with these issues in combination with exports, the Federal Reserve may have to work to stimulate the economy further pretty soon, rather than increasing its rate.
How The Market Reacted To The News
The fact that the Fed made the decision to keep its rate low is great news for US markets. As mentioned above, with low rates, consumers spend less money on interest, leaving more money available for spending elsewhere. This gives corporate earnings a bit of a bump and ultimately makes investors happy. So, as a result of the news, US indices started to rally today. The Dow Jones Industrial Average closed the day up over 155 points, the NASDAQ was up over 50 points and the S&P 500 gained more than 19 points.
How Binary Options Traders Can Take Advantage Of The Trends
With low interest rates remaining in effect, we can expect to see bullish movement in United States indices… at least for the short term. With that said, binary options traders should be paying close attention to the Dow Jones, S&P 500 and NASDAQ for opportunities. Taking advantage of the opportunities will be relatively simple. All you need to do is follow the support trend line. When the indices near this line, purchase call options to take advantage of the resulting upward movement. Keep informed and check out the latest financial news.
What Do You Think?
Where do you think US indices are headed and why? Let us know in the comments below!
[Image Courtesy of Business Insider]