In its latest meeting, the Federal Reserve noted improvements in both U.S. economic strength and broad labor market while inflation remains in check. The current environment allows the Fed to reduce its monthly pace of asset purchases while maintaining low rates–good signs for the corporate titans of Wall Street and the average Joes of Main Street.
The Fed’s optimism is rooted in upward trends in manufacturing and residential construction. They also have a positive outlook on employment as payrolls have increased four months in a row. GDP growth is now expected to exceed three percent excluding the first quarter’s contraction
Labor market gains have bolstered the confidence of policy makers this year. Although Fed Chairwoman Yellen continues to debate how long to keep interest rates near zero, her public message to markets is to expect no change through late 2015 or even 2016. The Fed remains convinced that inflation is well below its target of two percent.
The economy has improved in tandem with strong corporate earnings growth, pushing U.S. stocks to record highs. The VIX, a widely followed fear gauge, recently fell to its lowest level since early 2007. Market participants are betting that rising 401k balances and home prices should drive U.S. consumer confidence and boost spending at malls, dealerships and online.