New York – Wall Street cautiously advanced this morning, with investors placing modest bets that the Federal Reserve won’t indicate this week that it is leaning toward raising interest rates.
Investors got some reassurance on the economy from the Commerce Department, which reported that construction of new homes and apartments rose by 9 percent in February to a seasonally adjusted annual rate of 1.525 million units, higher than the expected 1.450 million. But the market’s enthusiasm was muted, as applications for building permits dropped.
The mixed housing data arrived as the Federal Reserve began its two-day meeting on rates. Investors are trading tentatively ahead of the Fed’s decision Wednesday, trying to determine if recent market tumbles and economic data will prompt the central bank to shift its posture on rates after several months of leaving them steady.
“It does seem like a wait-and-see pattern for the Fed,” said Neil Massa, equity trader at John Hancock Funds, adding that most market watchers are anticipating little or no change in policy makers’ statement. “I don’t know that any of the data we’ve seen is going to change their mind. The cuts expected for this year might be pushed out even further.”
The Fed has been avoiding lowering rates, given that inflation is still high. A rate hike could rein in consumer spending and hurt the housing market by making mortgages more expensive.
In midday trading, the Dow Jones industrial average rose 41.66, or 0.34 percent, to 12,267.83.
Broader stock indicators were also higher. The Standard & Poor’s 500 index was up 6.84, or 0.49 percent, at 1,408.90, and the Nasdaq composite index rose 14.03, or 0.59 percent, to 2,408.44.
Bonds rose, as the Treasury markets shrugged off the housing data and an announcement from China that the country doesn’t intend to build up its reserves. The yield on the benchmark 10-year Treasury note fell to 4.54 percent from 4.57 percent late Monday.
The housing data, showing a rise in construction but a fall in permit applications, didn’t provide a clear enough picture about the sector’s status to trigger a rally or a selloff in stocks ahead of the Fed meeting. The Fed has kept rates on hold for five straight meetings following two years of gradual hikes, and is widely expected to do so again this week.
Economists, including former Federal Reserve Chairman Alan Greenspan last week, have said that if the housing market doesn’t weaken too substantially, the financial troubles of subprime lenders shouldn’t leak into the broader economy.
Worries over subprime lenders, who make loans to people with poor credit ratings, continue to dog the markets, but they were somewhat alleviated today by news that subprime mortgage lender Accredited Home Lenders Holding Co. received a commitment for a $200 million term loan from Farallon Capital Management LLC, a San Francisco-based money manager.
