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Stocks Jump Following Fed Rate Decision

Associated Press | January 31, 2007

NEW YORK (AP) -- Stocks shot higher Wednesday after the Federal Reserve answered two of Wall Street 's major concerns, indicating that the economy remains healthy and that inflation pressures are easing. The Dow Jones industrials climbed nearly 100 points to set another trading high.

The Fed, which issued its economic assessment as it decided to leave short-term interest rates unchanged at 5.25 percent, said recent indicators "suggested somewhat firmer economic growth" and tentative signs of stabilization in the housing market. Investors also appeared pleased by the central bank's comments that readings on core inflation have "improved modestly" in recent months.

Wall Street had expected the Fed's Open Market Committee would leave short-term interest rates unchanged for the fifth straight meeting after a string of 17 straight increases that began in 2004. But investors had been uneasy about the central bank's economic assessment statement and whether it would indicate that policy makers were considering raising interest rates in the near future because the economy and/or inflation has been growing too fast.

"They coupled a firmer economic growth scenario with the expectation of moderate growth and they expect the inflation outlook to be improving," John Miller, head of fund management at Nuveen Investments , said of the Fed. "I don't think it makes it any more likely that they would feel compelled to raise rates."

According to preliminary calculations, the Dow rose 98.38, or 0.79 percent, to 12,621.69. The Dow came with a few decimal points of a week-old closing high and set a new trading high of 12,657.02. The previous trading high set Jan. 24 was 12,623.45; the Dow's record close remains 12,621.77.

Broader stock indicators also spurted higher. The Standard & Poor's 500 index rose 9.42, or 0.66 percent, to 1,438.24 and the Nasdaq composite index gained 15.29, or 0.62 percent, to finish at 2,463.93.

For the first month of the year, the Dow rose 1.27 percent, while the S&P gained 1.41 percent and the tech-dominated Nasdaq added 2.01 percent. Some on Wall Street are fond of noting that as the S&P 500 goes in January, so goes the year. The so-called January barometer has had only five major errors since 1950, for an accuracy rate of 91.1 percent, according to the Stock Trader's Almanac.

The Fed's comments pushed the Russell 2000 index of smaller companies above the 800 mark; it finished up 2.37, or 0.30 percent, at 800.34.

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