(Bloomberg) — U.S. stocks rose, sending the Standard & Poor’s 500 Index to a record, while the dollar slid and Treasuries and gold rallied as the Federal Reserve unexpectedly refrained from reducing its monetary stimulus.
The S&P 500 climbed 0.9 percent to 1,720.78 as of 2:40 p.m. in New York after dropping as much as 0.3 percent before the Fed decision. The Bloomberg U.S. Dollar Index sank 0.9 percent while the pound reached an eight-month high versus the American currency. The yield on 10-year U.S. government securities dropped nine basis points to 2.76 percent. Gold for immediate delivery rallied 2.6 percent to $1,344.07 an ounce. Oil jumped more than 2.5 percent.
The Federal Open Market Committee said after a two-day meeting that it wants to see more more evidence that economic progress will be sustained before adjusting the pace of its $85 billion in monthly purchases of Treasury and mortgage debt. While “downside risks” to the outlook have diminished, “the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement,” the central bank said.
“Fed-driven liquidity will continue for at least another month or two, and certainly that’s an overall positive for the broad equity market,” Terry Sandven, chief investment strategist at U.S. Bank Wealth Management, said in a phone interview. His firm manages $112 billion. “On the other side of that equation, it sends the signal that the Fed is not yet confident that economic conditions are improving at a sustainable rate.”
Economists Predictions
Economists had forecast the FOMC would dial down monthly Treasury purchases by $5 billion, to $40 billion, while maintaining its buying of mortgage-backed securities at $40 billion, according to a Bloomberg News survey.
Most Federal Reserve policy makers expect the first increase in the nation’s benchmark lending rate to occur in 2015. The federal funds rate target will be 2 percent at the end of 2016, according to the median of estimates by five governors on the Fed’s board and 12 reserve bank presidents. That rate compares with their median estimate of 4 percent for where the rate should be at a time of full employment and stable prices.
The Fed’s stimulus has helped the S&P 500 rally more than 150 percent from its March 2009 low. Speculation over the future of quantitative easing has whipsawed global asset prices since May, when Chairman Ben S. Bernanke first signaled cuts may start in 2013. The S&P 500 tumbled 5.8 percent from a record on May 21 through June 24. It rebounded 8.7 percent to close at its latest record last month, then slumped as much as 4.6 percent before rebounding again and climbing within five points of the record yesterday.
