Stocks End Lower Despite Better View From Fed

Investors were encouraged by the Fed's latest improved assessment of the economy, but not enough to propel the Dow Jones industrial average past 10,000.

Anthony Rinaldi, left, of LaBranche & Co. and James Kay of J.P. Morgan Securities trade shares in...

Anthony Rinaldi, left, of LaBranche & Co. and James Kay of J.P. Morgan Securities trade shares in Cemex, which was raising $1.55 billion to pay down debt, on the floor of the New York Stock Exchange, Wednesday, Sept. 23, 2009, in New York. (AP Photo/Henny Ray Abrams)

(AP)

Stocks closed lower Wednesday as a brief rally followed the Fed's economic statement and then faded. The Dow came within 82 points of crossing 10,000 for the first time since October, but ended the day with a loss of 81.

Stocks often trade erratically on days when the Fed meets to discuss interest rates, as investors pore over the statement accompanying the Fed's interest rate decision for clues about the economy and what the central bank's next steps might be.

Analysts said there were no surprises from the Fed meeting, though some investors worried that the Fed would pull its supports for the economy too soon.

"I think there is a real concern out there that this is just a head-fake and the stimulus out there is temporary," said Thomas Wilson, managing director of the institutional investments and private client group at Brinker Capital in Berwyn, Pa. He pointed to the Fed's slowing of its purchases of mortgage-backed securities. But he also said "the market got exactly what it was expecting."

The central bank's governors said the pace of economic activity has "picked up" since their last meeting in August, and they said they would keep short-term interest rates at historically low levels near zero "for an extended period."

That allayed any lingering concerns that the Fed was considering a rate increase, something it will have to do eventually in order to keep inflation in check. Higher interest rates would protect against prices creeping higher, but it would also mean greater borrowing costs for banks and businesses, a negative for both stocks and bonds.

In its statement, the Fed said it would "continue to employ a wide range of tools" to spur a recovery while also staving off inflation. It said it would again slow some of its purchases of mortgage-backed securities, part of the extraordinary support the central bank has been giving the economy over the past year. The move shows the Fed is increasingly confident about a recovery.