Stocks end volatile day higher after Fed statement
NEW YORK -- Wall Street overcame disappointment in the Federal Reserve's failure to move toward an easing of interest rates Tuesday, and stocks made a late-day surge as the decision was seen as a sign the economy wasn't threatened by turmoil in the credit markets.
Investors were at first deeply disappointed that policymakers, who kept benchmark rates on hold at 5.25%, did not provide any hints about a possible cut. But, after digesting the policy statement, they quickly gained solace that the economy is likely to withstand losses from subprime mortgages.
The Dow Jones industrials rose into positive territory from a 121 point deficit right after the decision was announced.
The Fed's Open Market Committee's economic assessment said the central bank's predominant concern "remains the risk that inflation will fail to moderate as expected." Wall Street, which has been shaken by two weeks of volatility over the more difficult conditions in the credit markets, appeared relieved the Fed didn't consider risk to the credit and loan markets as a bigger concern.
The statement, while noting credit problems, continuing weakness in the housing market and the market's turbulence, stood fast by the Fed's inflation policy. It gave little new insight into which way policymakers were leaning about a possible interest rate cut, however.
"I think what the Fed is trying to tell us is the economy is still in reasonably good shape, they're still concerned about inflation and they welcome the repricing of risk as long as it does not result in the markets seizing up from a liquidly standpoint," said Robert Auwaerter, head of fixed income portfolio management at Vanguard Group.
The Dow Jones industrial average gained 35.52, or 0.3%, to 13,504.30. The blue chip index had risen as much as 102 points after the decision; it is the first time since July 30 that it hasn't closed with a triple-digit gain or loss.
The Standard & Poor's 500 index rose 9.04, or 0.6%, to 1476.71, while the Nasdaq composite index rose 14.27, or 0.6%, to 2561.60. The Russell 2000 index of smaller companies fell 7.22, or 0.94%, to 773.61.
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