Relief rally: Stocks soar on Fed rate news

March 20 01:44 2015

U.S. stocks rallied sharply after the Federal Reserve ruled out interest rate hikes at next month’s meeting and said it had not “decided on the timing” of the first rate increase in nearly nine years. Stocks were lower ahead of the Fed’s announcement Wednesday afternoon, but rose sharply after the highly anticipated policy statement was released at 2 p.m. ET at the end of its two-day meeting. In a statement, the Fed, as expected, did drop its promise to be “patient” as it weighs interest rate hikes, clearing a path for an increase as early as June based on recent Fed guidance. Still the stock market reacted bullishly to the Fed’s suggestion that rate hikes were not baked in for June, as feared.the-percentage-of-americans-playing-the-stock-market-is-at-an-all-time-low

At the start of her faceoff with reporters, Yellen, in her prepared statement, said: “Just because we removed the word ‘patient,’ doesn’t mean we will be impatient.” She added that it removing the key word that it has used as a promise not to raise rates for at least two meetings, also “doesn’t necessarily mean an increase (in rates) will occur in June.” Wall Street had feared that the Fed could move as early as June.

Prior to the Fed announcement, the Dow Jones industrial average was down 90 points, or 0.5%. But it rallied sharply after the Fed news and was up 190 points to 18,040 — a 280-point swing to the upside — a few minutes into Yellen’s press conference with reporters. The Standard & Poor’s 500 index also rallied and was 1% higher after the news, and the tech-heavy Nasdaq composite index was up 1.1% on the day, after being down 0.3% before the Fed news. Markets clearly are rallying on the belief that the Fed will continue to keep rates lower for longer.

“Today’s action says that the interest rate won’t remain at zero indefinitely, but the ensuing rise in interest rates will be slow and gradual,” says Sung Won Sohn, finance professor at California State University CI. The Fed said before it starts to normalize rates, it would still like to see “further improvement in the labor market” and also be “reasonably confident that inflation will move back to its 2 percent objective over the medium term.

“This change in the forward guidance does not indicate that the (Fed) has decided on the timing of the initial rate increase,” the Fed statement said. The Fed’s benchmark rate has been near zero since the 2008 financial crisis, which has helped fuel the six-year bull market. Oil fell below $43 a barrel as U.S. benchmark crude plunged 2.1% to $42.56 in electronic trading on the New York Mercantile Exchange. The drop comes ahead of the release of the Energy Information Administration’s weekly information on petroleum inventories.