A surprised Wall Street applauded the Federal Reserve’s
unprecedented decision to slash its target for a key interest to a
record-low range and took comfort from the central bank’s pledge to
keep rates low and use
”
all available tools
”
to jump-start the economy.
NEW YORK
A surprised Wall Street applauded the Federal Reserve’s unprecedented decision to slash its target for a key interest to a record-low range and took comfort from the central bank’s pledge to keep rates low and use “all available tools” to jump-start the economy.
Stocks already up more than 1 percent ahead of the announcement extended their advance. Demand for long-term government bonds increased and pushed yields to record lows. Wall Street’s was clearly caught off-guard by the Fed’s decision to lower its target for the rate at which banks lend each other money to a range of zero to 0.25 percent.
Many analysts had expected the Fed to make a smaller cut to 0.5 percent from 1 percent.
“All in all, it’s good news for stocks,” said Jack A. Ablin, chief investment officer at Harris Private Bank. “It gave the market a little bit more than they expected.”
The fact that the Fed targeted a range indicates that policy makers did not want to bring the rate all the way to zero, Ablin said. Such a move could have had problematic implications for money market funds, whose fees could then outpace yields.
The decision to target a range was “strange,” Ablin said, but “that said, it definitely didn’t surprise us to the downside in terms of target.”
The Fed’s statement said policy makers have other tools available – which means the Fed is saying that “we’re pretty much out of dry powder on our primary weapon, but we’ve got other weapons available to combat deterioration in the economy,” Ablin said.
“I inferred that rates are going to stay this low for a while.”
The Dow Jones industrial average rose 253.84, or 2.96 percent, to 8,818.37 after having been up about 100 ahead of the move.
Broader stock indicators also rose. The Standard & Poor’s 500 index advanced 29.68, or 3.42 percent, to 898.25, and the Nasdaq composite index rose 56.18, or 3.72 percent, to 1,564.52.
The Russell 2000 index of smaller companies rose 17.46, or 3.86 percent, to 470.03.
