Stocks set records on Fed stimulus statement
U.S. stocks staged an explosive rally Wednesday, driving the Dow and the S&P 500 to all-time closing highs after the Federal Reserve announced it would start to unwind its historic stimulus.
While the Fed's move came as a surprise to many in the market, it put to rest the question of when the Fed would begin to scale back its bond-buying program and came as a relief for some investors, analysts said.
"This is a vote of confidence in the economy," said David Joy, chief market strategist at Ameriprise Financial, in Boston.
The central bank said it would reduce its monthly asset purchases, intended to lower interest rates and boost the economy, by $10 billion, to $75 billion.
The Fed also indicated that it would keep its key interest rate at rock bottom even longer than previously promised. It said it "likely will be appropriate" to keep overnight rates near zero "well past the time" that the U.S. jobless rate falls below 6.5 percent. The current jobless rate is 7 percent.
Yet the decision to move now rather than later pointed to better prospects for the U.S. economy and the labor market.
Stocks initially slid, but quickly turned higher and began rallying. The Dow Jones industrial average rose 292.71 to end at 16,167.97, a record. The Standard & Poor's 500 index gained 1.66 percent to finish at 1,810.65, also a record. The Nasdaq composite added 1.15 percent to close at 4,070.06.
Fed chairman Ben Bernanke said in a news conference that if U.S. jobs gains continue as expected, the bond purchases would likely continue to be cut at a "measured" pace through much of next year. They would probably be wound down "late in the year, certainly not by the middle of the year," he said.
"The recovery clearly remains far from complete," Bernanke said.
He said he consulted closely on the decision with Janet Yellen, the Fed's vice chair who is set to succeed him after his second four-year term at the central bank's helm ends on January 31. "She fully supports what we did today," Bernanke said.
John Rizzo, chief economist of the Long Island Association, the Island's largest business group, said the Fed's "modest shift in policy should not damage continued economic recovery on Long Island."
With Newsday staff