New York – Wall Street rallied sharply Wednesday after an economic assessment by the Federal Reserve ignited investor hopes that the central bank has warmed to the idea of lowering short-term interest rates.
After Wednesday’s triple-digit gain, the Dow Jones industrials have surged 337 points this week, the best three-day rise for the blue-chip average since November 2004.
Investors had nervously awaited the statement that accompanied the Fed’s decision to leave short-term interest rates unchanged at 5.25 percent and were encouraged that the central bank didn’t refer to the possibility of “additional firming” of rates, as it did in January. Policymakers said “future policy adjustments” will depend on inflation and growth – more neutral language that the market interpreted as opening the way for a possible rate cut. The Fed indicated that it remains vigilant about inflation, though.
The market was also relieved that the central bank left in place language in its statement that it still expects the economy will “continue to expand at a moderate pace.” While a slowdown likely would quell the threat of inflation, it also would dent corporate profits.
“I think it did a bit to assuage the equity market’s concerns that the Fed understands there is a possibility that the drag on the consumer could bring GDP down below where they expect,” said Quincy Krosby, chief investment strategist at the Hartford, referring to gross domestic product – the broadest measure of the economy.
The Dow soared 159.42, or 1.30 percent, to 12,447.52, after having been flat until the Fed announcement. It was the index’s biggest one-day point gain since July 24.
Broader stock indicators also posted strong gains. The Standard & Poor’s 500 index jumped 24.10, or 1.71 percent, to 1,435.04, and the Nasdaq composite index advanced 47.71, or 1.98 percent, to 2,455.92.
