Jia Liu, PhD
Articles from Jia Liu, PhD
Do changes in the economy affect the stock and bond markets?
From day to day, fluctuating prices in the financial markets are of great interest for high-frequency traders. But daily market movement is so volatile that economists call it a “random walk” whose next steps are unpredictable. To date, no clear pattern of daily movement has been found by researchers.
It is no surprise that no action was taken at the April Federal Open Market Committee meeting since the central bank has firmly formed public expectation of no interest rate increase in April. The question of interest to the market is whether the Federal Reserve has revealed some clear signal in its statement about the timing of the future rate increase. Disappointingly (but not surprisingly), the Fed didn’t change its forward guidance on rate increases from the March statement.
The Federal Open Market Committee March meeting minutes released on Wednesday highlight several changes compared with the previous meeting in January, which are worth noting. All in all, the FOMC is on track to start raising interest rates. Even though the timing of the first rate rise is not decided, the policy tools and strategies are getting clearer.
Apple Inc. today joins the Dow Jones Industrial Average, replacing AT&T. For a listing originally based on heavy industry, the fact that Apple, the technology-driven consumer electronics company that has the largest market value in the world, is now entering the Dow reflects how much the economy has changed.
Since the summer of 2014, the precipitous decline in oil prices brought down the prices of many energy-related items. This decline influenced consumer prices and producer prices, as well as consumers’ purchasing power. The strong U.S. dollar put additional downward pressure on domestic prices. But in the recovering economy, growing demand has served to push up prices that are not related to energy costs. As a result, the overall price level posted only mild decreases in the last quarter of 2014.
In September, the headline Consumer Price Index (CPI) increased by 0.09 percent after falling 0.20 percent in August. Rising domestic demand in August helped push up the Consumer Price Index Core by 0.14 percent in September, compared to last months’ 0.01 percent increase. However, industrial production has caught up and consumer demand has cooled, suggesting a moderating inflationary climate in coming months. Slowing global economic growth and falling oil prices provide further support for that outlook.