September 18, 2013

Stock market sets record as Fed keeps stimulus

The Dow Jones industrial average jumps 147 points, or 1 percent.

By MARTIN CRUTSINGER/The Associated Press

(Continued from page 1)

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Trader Jonathan Corpina works on the floor of the New York Stock Exchange on Wednesday. The stock market hit a record high Wednesday after the Federal Reserve's surprise decision to keep its economic stimulus in place.

The Associated Press

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Traders Stephen Mara, left, and Edward Schreier work on the floor of the New York Stock Exchange on Wednesday.

The Associated Press

David Robin, an interest rate strategist at Newedge LLC, said Fed policymakers were surprised by how fast rates rose after they raised the possibility of scaling back the bond purchases. They likely worried that rates would rise even more, and jeopardize the economy, if they reduced the bond-buying.

Bernanke said the Fed is concerned that looming fights between Congress and the White House over the budget and taxes could slow the economy. Unless Congress can agree to fund the government past Oct. 1, a government shutdown will occur.

The government is also expected to reach its borrowing limit next month. Unless Congress agrees to raise the limit, the government won't be able to pay all its bills.

"This is one of the risks we are looking at," Bernanke said.

The Fed's policy statement was approved on a 9-1 vote. Esther George, president of the Federal Reserve Bank of Kansas City, dissented for the sixth time this year. She repeated her concerns that the bond purchases could fuel high inflation and financial instability.

The decision to maintain its stimulus follows reports of sluggish economic growth. Employers slowed hiring this summer, and consumers spent more cautiously.

Super-low rates are credited with helping fuel a housing comeback, support economic growth, drive stocks to record highs and restore the wealth of many Americans.

John Canally, investment strategist at LPL Financial, suggested that markets had overreacted in anticipation of reduced bond purchases.

Higher rates "started to impact the real economy, and (the Fed) got a little bit concerned," he said.

Economists suggested that the Fed will still eventually scale back its bond buying program, perhaps before year's end.

"Tapering will come sooner rather than later, assuming that the economy cooperates," Sung Won Sohn, an economist at California State University Channel Islands, wrote in a report.

 

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