Investors wary of rate increases
NEW YORK » Wall Street managed a tiny gain yesterday, enough to give the Dow Jones industrial average another record close, after the Federal Reserve stoked some fears of inflation pressures but implied that it's not intent on raising interest rates.
The Fed's Open Market Committee kept the nation's benchmark rate unchanged at 5.25 percent for a third straight meeting, but it noted in its accompanying policy statement that readings on inflation have moved higher recently. Stocks waffled after the Fed's decision was released as investors worried that inflation concerns could prompt the central bank to resume its rate increases in the future.
There may also have been some disappointment on Wall Street because "it's not a sign that the Fed is going to be cutting rates anytime soon," said Drew Matus, senior economist at Lehman Brothers.
Still, the market held up well. There were really few, if any, surprises in the Fed's statement, which described the economy as likely to grow at a moderate pace after more than two years of rate increases.
"I think that the stock market, if it has one mind, is saying the soft landing is in place, that the Fed is on hold for a while," said Jerry Webman, chief economist at Oppenheimer Funds.
"The stock market thinks the Fed just patted them on the back and said, go ahead boys and girls," Webman said.
The Dow rose 6.80, or 0.06 percent, to 12,134.68. After the Fed announcement, the Dow reached another new trading high of 12,147.97 before pulling back; it also set new trading and closing records the previous session.
Broader stock indicators also closed higher. The Standard & Poor's 500 index rose 4.84, or 0.35 percent, 1,382.22, putting it at a nearly six-year high. The Nasdaq composite index rose 11.75, or 0.50 percent, to 2,356.59.
Bonds rallied, with the yield on the benchmark 10-year Treasury note falling to 4.76 percent from 4.82 late Tuesday. The dollar was mixed against other major currencies, while gold prices rose.
Light, sweet crude settled up $2.05 at $61.40 a barrel on the New York Mercantile Exchange after a weekly Energy Department report showed an unexpected drop in crude inventories. Meanwhile, sentiment has grown in recent days that OPEC production cuts might help shore up oil prices. On Friday, oil prices fell to their lows for the year.
The Fed comments, which Webman notes again signal that the central bank "isn't going to stand for inflation," will likely mean investors already skittish about rising interest rates will be even more sensitive to news of rising prices.