Stocks move higher after Fed cuts rates
NEW YORK » Wall Street bounded higher yesterday after the Federal Reserve assuaged some of investors' fears about a sinking economy, stating that risks to the financial markets from the summer's credit crises have eased. The Dow Jones industrial average gained more than 130 points on the day.
Stocks initially zigzagged after the Fed lowered interest rates as expected because some investors balked at the notion that the Fed might not lower rates again at its December meeting. However, investors eventually appeared relieved that the Fed's comments about the inflation -- a perennial concern -- signaled the central bank was able to return to somewhat more parochial worries and focus less about upheaval in the credit markets than when it met last month.
Wall Street was heartened by the fact that investors, businesses and consumers alike will be getting cheaper access to cash because of the widely anticipated quarter-point rate cut. The fed funds rate now stands at 4.5 percent. Last month, the Fed surprised the market with a larger-than-expected half-point cut in the funds rate -- the rate banks charge each other for overnight loans.
The rate cut came after a 9-1 vote, with Kansas City Fed President Thomas Hoenig dissenting, arguing that he preferred no change in the funds rate.
The Fed yesterday also lowered the rate it charges to lend directly to banks, the so-called discount rate.
After months of agonizing over an anemic credit market, investors appeared to take some solace that the Fed found room to offer a less accommodative statement than some had expected.
The Dow, which had dipped briefly into negative territory after the decision, rose 137.54, or 1 percent, to 13,930.01.
Broader stock indicators also advanced. The Standard & Poor's 500 index rose 18.36, or 1.20 percent, to 1,549.38, and the Nasdaq composite index rose 42.41, or 1.51 percent, to 2,859.12. The Russell 2000 index of smaller companies rose 11.87, or 1.45 percent, to 828.02.
Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where consolidated volume came to 3.84 billion shares, versus 3.11 billion shares traded Tuesday.
Treasury bond prices fell after the Fed's decision. The yield on the 10-year Treasury note, which moves inversely to its price, rose to 4.47 percent from 4.39 percent late Tuesday.
Oil futures climbed to nearly $95 per barrel for the first time after the government reported an unexpected drop in crude oil inventories for the second week in a row. Light, sweet crude rose $4.15 to settle on the New York Mercantile Exchange at $94.53.
The dollar fell to a fresh low against the euro after the Fed's decision and gave up ground against other major currencies. With rates lower, some investors looked for higher-yielding currencies.
Gold rose above $800 an ounce for the first time in 27 years.
In comments following its two-day meeting, central bank policymakers said recent spikes in energy and commodity prices are among the forces that could be adding to inflation pressures.