5 Big Winners As Fed Keeps Rates Near Zero

Image: Bigstock

The U.S. economy has been doing particularly well of late, with barometers of manufacturing, services, outlays, and hiring showing signs of improvement. Demand for new orders drove manufacturing activities. Meanwhile, the reopening of businesses and relaxation of stringent norms to curb the spread of coronavirus helped the U.S. service sector regain strength.

Consumers, in the meanwhile, continue to be upbeat about their financial conditions and have bumped up spending lately. Job additions are also happening at a steady clip, with the jobless rate dropping to 6% in March, as mentioned in a Bloomberg article.

Of course, with the economy showing unprecedented strength, investors are anxious about the rise in the inflation rate. However, the Fed in its recently concluded two-day policy meeting remained fairly dismissive about the risks of higher inflation for now. Needless to say, the Fed had earlier confirmed that there may be a slight bump in inflation this year but it will be short-lived.

In fact, the Fed has yet again reassured to keep the benchmark federal funds rate near zero to help the economy recoup from the pandemic. This is because, despite the economy showing signs of progress, the central bank believes that many Americans are jobless and cash-strapped, which surely calls for an accommodative monetary policy at the moment.

The Fed has kept its benchmark interest rate at zero to 0.25%, where it has been since the pandemic ravaged the economy almost a year earlier, citing a livemint article. Such an ultra-low interest rate policy is ought to encourage borrowing and spending, something that bodes well for the economy vis-à-vis the stock market.

In fact, from an investment standpoint, it’s prudent to search for stocks that directly benefit from a low-interest-rate environment. Utility stocks are no doubt rate-sensitive. Being capital intensive in nature, utility-related companies have high debt levels. A low-interest-rate environment will certainly help such companies pay off debts and register profits. This in turn will boost their credit ratings, which should help them borrow more funds at a cheaper rate from the markets.

1 2 3
View single page >> |

Disclaimer: Neither Zacks Investment Research, Inc. nor its Information Providers can guarantee the accuracy, completeness, timeliness, or correct sequencing of any of the Information on the Web ...

more
How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.