Why Stock Investors Can Now Relax for a 'Considerable Time'

NEW YORK (TheStreet) -- The Federal Reserve had good news for stock investors on Wednesday -- and the market responded in kind.

The Dow and the S&P 500 hit fresh highs, although they fell back by the close.

The fact that the central bank will keep interest rates low for "a considerable time" means that investors will be in a favorable market environment well into 2015.

What's behind this?

In terms of economic growth, the projections by Fed members for the next four years are very similar to the past five years. That is, the economic recovery will continue at the same pace we've already seen.

The highest annual projection for the next four years is a growth rate in real GDP of 3.2%, and this is expected to come in 2015. Otherwise, the highest projection for 2014 is 2.3%; for 2016, 3.0%; and for 2017 the high is 2.6%.

For the "longer run," Fed officials see the range of economic growth being in the range of 1.8% to 2.6%. This is far below what was achieved in the 50 years leading up to the Great Recession.

As for inflation, these officials see inflation running around 2.0%, both in both terms of personal consumption and "core" spending, which excludes food and energy.

So, what is this saying? In spite of all the liquidity the Fed has pumped into the banking system, economic growth is just going to continue to be modest. Apparently, the Federal Reserve can't do anything about this.

Unemployment is going to continue to decline, reaching the neighborhood of 5.0% in 2017. The economy will get somewhere around the level analysts consider to be full employment, but this will be achieved by the economy working by itself and not from the efforts of the monetary authorities.

And, with such low growth, such low inflation, there will be little demand for short-term funds in the economy and hence short-term interest rates can stay where they are today...for a considerable time.

Therefore, the "flow of the Fed" will not be to raise interest rates and reduce bank liquidity. All indications are that Janet Yellen and the Fed will err on the side of ease. The Federal Reserve can act in this way because the economy is going to stay so weak that there will be very little pressure in the market to raise interest rates.

This should be a favorable environment for investment in the stock market.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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