May 2004 Financial News

Federal Reserve Holds Interest Rates Steady for Now

May 05, 2004

The Federal Reserve's policy statement Tuesday leaves open the possibility for a rate hike as early as June, several economists said Tuesday. "The Fed has declared it's ready to tighten," said Asha Bangalore, U.S. economist at Northern Trust. The central bank removed its pledge to remain "patient" in hiking rates Tuesday but said policy accommodation can be removed at a "pace that is likely to be measured". "I'm not sure what that means," Bangalore said. "It probably means they won't do 50 [basis points] or 75, but I don't know. It definitely means they're doing something in 2004." (source: TheStreet)

As worries of higher interest rates have intensified, the Nasdaq has fallen by 7 percent despite some impressive first quarter earnings reports from a lot of tech bellwethers in April. Why are investors ignoring the good news? The conventional wisdom is that higher rates are bad for stocks in general because it raises borrowing costs for companies, thereby putting a dent in earnings. What's more, investors are concerned that rate hikes could cause businesses to slow down their purchases of things like computers, servers and software. But will a series of rate hikes really put a damper on tech stocks? A look back at some other periods of Fed rate increases indicates that the market is worrying needlessly. (source: CNN Money)