Wednesday, December 17, 2008
Wall Street likes the Fed’s aggressive tone on dealing with the economy.
NEW YORK (AP) — A surprised Wall Street bolted higher Tuesday after the Federal Reserve’s historic decision to further slash interest rates and pledge broad support to revive the troubled economy.
The Dow Jones industrials surged 360 points, or 4.2 percent, and broader indexes jumped more than 5 percent after the central bank said it will use “all available tools” to jump-start the economy. It also set its target for the rate at which banks lend to each other to a range of zero to 0.25 percent, the lowest level on record.
Demand for long-term government bonds increased and pushed yields to record lows.
The promise of further government action and a Swiss-army-knife approach for mending the economy damped concerns that policymakers were running low on tools to fan the economy by further lowering interest rates.
The idea that the Fed will likely proceed with plans to snap up government and mortgage debt made it easier for investors to place bets that the central bank will do what is necessary to help bring an end to the longest recession in a quarter-century.
“Today was a reminder that the Fed was on the case,” said Jim McDonald, director of equity research at Northern Trust in Chicago. “It was a reaffirmation of their willingness to be very aggressive.”
“What we heard today was not revolutionarily different, but it was a reminder that they are committed to using their balance sheet to the fullest extent to repair the financial markets and stimulate the economy.”
Many analysts had expected the Fed would cut its fed funds rate to 0.5 percent from 1 percent.
“In some senses the whole point of this meeting was to say, ‘Quit watching interest rates; watch the other things that we can and will do,’” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.
Jack A. Ablin, chief investment officer at Harris Private Bank, said the fact that the Fed targeted a range for its fed fund rate indicates that policymakers did not want to bring the rate all the way to zero. Such a move could have had problematic implications for money market funds, whose fees could then outpace yields.
The Dow rose 359.61, or 4.20 percent, to 8,924.14 after having been up about 100 in subdued trading ahead of the Fed’s announcement.
Broader stock indicators also rose. The Standard & Poor’s 500 index advanced 44.61, or 5.14 percent, to 913.18, and the Nasdaq composite index rose 81.55, or 5.41 percent, to 1,589.89.