Stocks end mixed after Fed holds line on rates

NEW YORK -- The Federal Reserve's assessment that the economy is on the mend gave little comfort to the stock market and bond prices fell after the Fed noted rising prices for commodities.

The central bank's decision Wednesday to leave a key lending rate at a low of zero to 0.25% wasn't a surprise. Stocks pulled off their highs of the day to fluctuate in a narrow range.

In the economic assessment statement accompany its rate decision, the Fed said the economy's rate of decline appears to be slowing. It noted that consumer spending has shown further signs of stabilizing although job losses, shrinking wealth and tight credit remain problems. And while the Fed said economic activity is likely to remain weak for some time, it repeated its belief that stimulus policies will restore the economy to growth.

But the Fed's comments on inflation were unsettling. Policymakers noted that energy and other commodities prices have risen, although they said "substantial resource slack" would likely rein in cost pressures and that inflation "will remain subdued for some time."

The mention of higher prices hit the Treasury market because the value of returns on fixed-income investments can erode quickly if inflation occurs. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.69% from 3.63% Tuesday.

"I think a lot of people get misled by commodity prices as if that is the root of inflation," said Steve Darden, wealth adviser at Williams Financial Advisors in Shreveport, La. "Wages, benefits, people-related costs are two-thirds or more of finished good prices."

The Fed also didn't say it would increase its purchases of Treasurys or other kinds of government debt, disappointing some investors who had hoped for more. The Fed has said it would buy $1.25 trillion in mortgage-backed securities and $300 billion in Treasurys in an effort to stimulate the economy by keeping borrowing rates low.