Wall Street Struggles After Fed Statement

Wall Street Struggles After Fed Statement

By THE ASSOCIATED PRESS
Published: December 16, 2009

Shares struggled Wednesday — ending the day mixed — after the Federal Reserve reminded investors that it would end several of its extraordinary supports for the economy in the coming year.

Investors had anticipated that several programs would be wound down as expected next year, but policy makers had not confirmed the precise timing.

The Fed said it would leave interest rates near zero, as the market had expected, but policy makers also noted that weakness in the job market is “abating.” Fed governors made the assessment in a statement following a two-day meeting to discuss interest rate policy.

Investors parse those statements closely to see how the Fed is viewing the state of the economy and for clues about when it might raise interest above their historic lows. .Ultra-low borrowing costs have been a factor behind a massive rally in stocks this year, as well as a weakening of the dollar against other currencies.


Money managers are seeking any and all clues about when the Fed may feel the economy is strong enough to tolerate higher interest rates, which will help keep inflation in check.

Stocks had been higher ahead of the Fed’s announcement after a benign reading on consumer price inflation eased concerns that the Fed would be forced to raise interest rates any time soon. The statement from the central bank reinforced that notion. Policymakers repeated that inflation is likely to remain under control and that interest rates would remain low for “an extended period.”

Earlier Wednesday the government reported that consumer prices excluding food and energy were flat in November, signaling that inflation isn’t working its way into the economy. It was the first time that “core” inflation was unchanged after 10 monthly increases.

On Tuesday, stocks fell for the first time in five days and Treasurys slipped after a jump in wholesale prices led to speculation that the Fed would have to raise interest rates sooner than expected.

At the close, the Dow Jones industrial average was down 10.88 points, or 0.10 percent, at 10,441.12.

The broader Standard & Poor’s 500-stock index rose 1.25 points, to 1,109.18, and the Nasdaq rose 5.86 points, or 0.27 percent, to 2,206.91.

Bond prices mostly fell, pushing yields higher, following the Fed’s more upbeat assessment of the economy. The yield on the benchmark 10-year Treasury note rose to 3.61 percent from 3.60 percent late Tuesday. Prices had been higher ahead of the Fed’s announcement.

A drop in the dollar from a two-month high boosted commodity prices. Gold climbed, while crude oil rose $2.45 to $73.14 per barrel on the New York Mercantile Exchange.


http://www.nytimes.com/2009/12/17/business/17markets.html?ref=business