New York – Stocks shot higher Wednesday after the Federal Reserve answered two of Wall Street’s major concerns, indicating that the economy remains healthy and that inflation pressures are easing. The Dow Jones industrials climbed nearly 100 points to set another trading high, while the Russell 2000 index had its first close above 800.
The Fed, which issued its economic assessment as it decided to leave short-term interest rates unchanged at 5.25 percent, said recent indicators “suggested somewhat firmer economic growth” and tentative signs of stabilization in the housing market. Investors also appeared pleased by the central bank’s comments that readings on core inflation had “improved modestly” in recent months.
Wall Street had expected the Federal Open Market Committee to leave short-term interest rates unchanged for the fifth straight time after 17 straight increases that began in 2004.
But investors had been uneasy about the central bank’s economic-assessment statement and whether it would indicate that policymakers were considering raising interest rates in the near future because the economy and/or inflation had been growing too fast.
“They coupled a firmer economic-growth scenario with the expectation of moderate growth, and they expect the inflation outlook to be improving,” John Miller, head of fund management at Nuveen Investments, said of the Fed. “I don’t think it makes it any more likely that they would feel compelled to raise rates.”
The Dow rose 98.38, 0.79 percent, to 12,621.69. The Dow came within a hair’s breadth of a week-old closing high and set a trading high of 12,657.02. The previous trading high set Jan. 24 was 12,623.45; the Dow’s record close remains 12,621.77.
Broader stock indicators also shot higher. The Standard & Poor’s 500 index rose 9.42, 0.66 percent, to 1,438.24, and the Nasdaq composite index gained 15.29, 0.62 percent, to 2,463.93.
The Fed’s comments pushed the Russell 2000 index of smaller companies to a record close; it finished up 2.37, 0.30 percent, at 800.34.
Light, sweet crude settled up $1.17 at $58.14 per barrel on the New York Mercantile Exchange.
“We knew the economy was producing better numbers over the past couple of months, but they also acknowledged the improved outlook on inflation,” Miller said. “I think the description does characterize a soft- landing scenario, which appears to be unfolding.”
