Just as the Fed raised the federal funds rate by another 25 basis points Tuesday (3/22), to 2.75 percent, the stock and bond markets adjusted abruptly. Clearly, the change in wording indicated of the Fed's statement (http://www.federalreserve.gov/boarddocs/press/monetary/2005/20050322/ ) showed a greater concern about inflation (something we had already noted in class). The following day (today), the CPI release showed higher inflation than what was expected. This time, however, the stock and bond markets did not react as they did the previous day. The Dow-Jones average closed around 10,450, the Euro closed at $1.30, down from $1.34 just a few days ago, and the 10-year bond rate was almost unchanged from yesterday (at 4.61%).
For those familiar with candlestick charting, today's market activity formed a "shooting star," which occurred at a resistance level, when the RSI was in overbought territory. From a technical perspective, this set of occurrences points to the likelihood that the 10-year rate may be resting at its current level in the short-term.
Only a few days ago, the Dow-Jones tested resistance at 11,000. That seems like a long time ago, even though it was a short-time ago.
Finally, oil prices dropped sharply again today. Had this not occurred, would the decline in the Dow-Jones been as small?
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