US stock prices ease as Fed meeting begins

The major US indices have given back a small part of yesterday’s impressive gains, with uncertainty regarding the latest Fed meeting dictating the tone of trading on Wall Street.

By early afternoon in New York stocks were mainly in the red, with the S&P 500 Index down 0.28% or 4.9 points at 1781.7, while the Dow Jones had slipped back just 0.09% or 15 points to 15,869.

The latest FOMC meeting will be foremost in the thinking of traders for the next couple of days, with the committee’s decision to taper or not anybody’s guess at this point. Depending on which economic reports you concentrate on, a convincing case could be made for either outcome.

Many economic indicators have pointed to solid improvement in the US economy, including several reports this week, which would add weight to calls for a taper immediately, yet inflation remains not just benign but cool to a degree that could prove worrying enough for Fed officials to opt for no change in the pace of stimulus.

CPI data released earlier showed no change in headline inflation in November. Year-on-year the CPI stands at a seasonally-adjusted level of just 1.2%, substantially below the Fed’s 2% goal, which has been the case for an extended period.

The National Association of Home Builders released its housing market index today, which improved to a level of 58 in December, equalling August’s post-recession high. The index is made of up of three components (traffic of potential buyers, current sales conditions, expectations for future sales) and there were improvements in all, with the NAHB suggesting the advances are the result of constraints on demand disappearing after the resolution of the government shutdown.

In the forex market, the dollar has weakened generally, keeping within narrow ranges for the most part. The dollar index, a measure of the dollar’s strength against a basket of six major currencies, fell 0.04% by early afternoon in New York, with USD/JPY down 0.4% and USD/CHF 0.33% lower.

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