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Business News/ Market / Stock-market-news/  US stocks rise with dollar, treasuries fluctuate after Fed comments
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US stocks rise with dollar, treasuries fluctuate after Fed comments

The S&P 500 Index added 0.5% to an all-time high on a closing basis in New York

The Bloomberg Dollar Spot Index climbed 0.4% to a 14-month high. Oil declined. Photo: AFPPremium
The Bloomberg Dollar Spot Index climbed 0.4% to a 14-month high. Oil declined. Photo: AFP

New York: US stocks rose after the Federal Reserve pledged to keep rates low for a “considerable time." The dollar gained and the treasury yield curve flattened as officials raised estimates for interest rates at the end of next year.

The Standard & Poor’s 500 Index added 0.5% to an all-time high on a closing basis at 3:23 pm in New York. The rate on 10-year treasury notes fluctuated between gains and losses around 2.59%, as the difference between yields on two- and 30-year treasuries narrowed from a one-month high. The Bloomberg Dollar Spot Index climbed 0.4% to a 14-month high. Oil declined.

The Fed tapered monthly bond buying by $10 billion for a seventh time, staying on course to end the programme in October. Policy makers said the economy is expanding at a moderate pace and inflation is below its goal, while maintaining a commitment to keep interest rates near zero for a “considerable time" after asset purchases end. Officials also raised their median estimate for the federal funds rate at the end of 2015 by 25 basis points.

“This doesn’t change the path for expected Fed rate increases," Chad Morganlander, a money manager at St. Louis- based Stifel, Nicolaus & Co., which oversees about $160 billion, said in a phone interview. “The message was right down the middle. The market is taking that in stride and sighing in relief that they’re not going to move in a hawkish manner. You’ll continue to get additional dollar strength from the forward-looking guidance going into 2017."

Rate Estimates

Stocks extended gains after Janet Yellen said that it is not clear there is any gap between expectations among policy officials and market participants for the timing of rate increases. Research from the Federal Reserve Bank of San Francisco on 8 September had indicated investors may be underestimating how quickly the Fed may tighten policy.

Yellen and her colleagues are debating how much longer to keep interest rates near zero as they get closer to their goals for full employment and stable prices. The central bank left its target for overnight lending between banks in the range of zero to 0.25%, where it has been since 2008.

A report on Wednesday showed the cost of living in the US unexpectedly dropped in August for the first time in more than a year, showing inflation still is falling short of the Fed’s goal.

Financial and commodity shares led gains in nine of the 10 main industry groups in the S&P 500. FedEx Corp. and Lennar Corp. rallied more than 3% after posting earnings that topped analysts’ estimates.

The Bloomberg Dollar Spot Index rose as much as 0.5% to the highest level since July 2013. The gauge, which tracks the greenback against 10 major currencies, gained 2.7% this year through Tuesday.

Hawkish Elements

“The end-2015 target is higher than last time," Nick Bennenbroek, head of currency strategy at Wells Fargo & Co., said in a phone interview. “Arguably the focus today is on the some of the more hawkish elements of the statement."

Fed officials now estimate the federal funds rate at the end of 2015 will be 1.375%, compared with an estimate of 1.125% in June. The rate will be at 3.75% at the end of 2017, the Fed said on Wednesday for the first time as it included that year in its Summary of Economic Projections.

The difference between yields on two- and 30-year treasuries narrowed from a one-month high hit earlier.

“The key message is that the Fed is going to stay the course," Robert Stein, who oversees $900 million as chief executive officer at Chicago-based Astor Investment Management LLC, said in a phone interview. “The market movement is consistent with the optimism that the Fed will be able to execute its strategy, and more importantly, convey its message sufficiently. The market doesn’t seem to be surprised or scared by any of the things coming out of the Fed." Bloomberg

Oliver Renick in New York and Jeff Kearns in Washington also contributed to this story.

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Published: 17 Sep 2014, 07:42 PM IST
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