Stocks close lower after Fed stands pat
NEW YORK » Wall Street pulled back yesterday, finishing slightly lower as investors grappled with an economic assessment by the Federal Reserve that warned yet again of inflation risks and reported a substantial slowing of the housing sector.
The statement, which accompanied the Fed's widely expected decision to keep the nation's benchmark interest rate unchanged at 5.25 percent, left open the possibility that the central bank might raise rates if inflation accelerates. That disappointed some investors who were hoping for signs that the Fed was moving toward cutting rates.
Investors fear that an increase could cause problems if it comes as the economy -- in particular the interest rate-dependent housing sector -- is still slowing. Still, while the Fed has said its primary concern is inflation, it is also monitoring the overall economy for signs of too much of a slowdown. The Fed predicted, "the economy seems likely to expand at a moderate pace on balance over coming quarters."
Overall, the statement indicated that the Fed wants to keep rates steady for as long they can, analysts said.
"They're trying to talk tough in the hopes of not having to act tougher," said Jack Caffrey, equities strategist at J.P. Morgan Private Bank.
The Dow Jones industrial average was down 12.90, or 0.10 percent, at 12,315.58. Earlier in the day, it fell more than 76 points.
Broader stock indicators also fell, but closed above their lows as well. The Standard & Poor's 500 index slipped 1.48, or 0.10 percent, to 1,411.56, and the Nasdaq composite index fell 11.26, or 0.46 percent, to 2,431.60.
The Russell 2000 index of smaller companies fell 4.66, or 0.59 percent, at 788.41.
Declining issues outnumbered advancers by about 4 to 3 on the New York Stock Exchange, where consolidated volume came to 2.71 billion shares, compared to 2.29 billion shares Monday.
Crude oil for January fell 20 cents to settle at $61.02 a barrel on the New York Mercantile Exchange.
Bonds climbed after the Fed meeting, with investors relieved that little had changed in the central bank's statement. The yield on the benchmark 10-year Treasury note fell to 4.49 percent, down from 4.52 percent late Monday.
The dollar was mostly lower against other major currencies, while gold prices fell.
Another sign the economy is still faring well was the U.S. Commerce Department's report yesterday that the trade deficit fell to $58.9 billion in October, lower than econo-mists were anticipating. The 8.4 percent drop from September, the biggest percentage drop in 5 years, was a result of moderating oil prices -- a factor that the Fed took into consideration at its meeting yesterday.