Wall Street ends higher after Federal Reserve keeps interest rates steady; AIG worries remain
NEW YORK -- Wall Street ended another tumultuous session with a sizable gain Tuesday, partly recovering from its worst sell-off in years after the Federal Reserve said it was keeping interest rates steady. The central bank soothed fears of a worsening financial crisis even as the market waited to learn the fate of troubled insurer American International Group Inc.
In a statement accompanying its decision, the Fed noted the growing strains in the financial markets a day after the Dow Jones industrials plunged 504 points in reaction to continuing turmoil in the financial sector. The Fed also noted the ongoing weakening of the labor market. But it also sought to give some reassurance by saying it expected its policy moves to foster moderate economic growth over time.
The Fed has cut its target federal funds rate by 3.25 percentage points to its current level of 2 percent over the past year. Many on Wall Street expected the Fed to keep rates steady but there was some hope that the central bank would try to calm uneasy financial markets with a rate cut.
Still, the fact that the Fed didn't lower rates was a sign that it doesn't believe the economy needs that type of stimulus. It reiterated that it believed its moves to inject more liquidity into the banking system to help struggling financial institutions would help them, and in turn the economy overall.
"This was the right thing to do," said Tom Higgins, chief economist at Payden & Rygel Investment Management in Los Angeles. "I just don't think the Fed should be responding to the financial market crisis at this stage."
He contends other moves, like broadening the type of collateral the Fed accepts from banks and adding money to the banking system are more effective at addressing credit troubles.
In late afternoon trading, the Dow rose 169.92, or 1.56 percent, to 11,087.43, after falling about 100 points soon after the Fed announcement. Earlier, the Dow rose as much as 105 points and fell as much as 175 in fractious trading; on Monday, the Dow suffered its largest drop since the September 2001 terror attacks.
Broader stock indicators advanced. The Standard & Poor's 500 index rose 11.27, or 0.94 percent, to 1,203.97, and the Nasdaq composite index rose 15.28, or 0.70 percent, to 2,195.19.
Bond prices fell sharply as investors turned away from the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.49 percent from 3.41 percent late Monday.
Light, sweet crude fell $3.70 to $92.01 on the New York Mercantile Exchange as investors placed bets that slowing economic growth will crimp demand. The dollar was mixed against other major currencies, while gold prices fell.
NEW YORK -- Wall Street ended another tumultuous session with a sizable gain Tuesday, partly recovering from its worst sell-off in years after the Federal Reserve said it was keeping interest rates steady. The central bank soothed fears of a worsening financial crisis even as the market waited to learn the fate of troubled insurer American International Group Inc.
In a statement accompanying its decision, the Fed noted the growing strains in the financial markets a day after the Dow Jones industrials plunged 504 points in reaction to continuing turmoil in the financial sector. The Fed also noted the ongoing weakening of the labor market. But it also sought to give some reassurance by saying it expected its policy moves to foster moderate economic growth over time.
The Fed has cut its target federal funds rate by 3.25 percentage points to its current level of 2 percent over the past year. Many on Wall Street expected the Fed to keep rates steady but there was some hope that the central bank would try to calm uneasy financial markets with a rate cut.
Still, the fact that the Fed didn't lower rates was a sign that it doesn't believe the economy needs that type of stimulus. It reiterated that it believed its moves to inject more liquidity into the banking system to help struggling financial institutions would help them, and in turn the economy overall.
"This was the right thing to do," said Tom Higgins, chief economist at Payden & Rygel Investment Management in Los Angeles. "I just don't think the Fed should be responding to the financial market crisis at this stage."
He contends other moves, like broadening the type of collateral the Fed accepts from banks and adding money to the banking system are more effective at addressing credit troubles.
In late afternoon trading, the Dow rose 169.92, or 1.56 percent, to 11,087.43, after falling about 100 points soon after the Fed announcement. Earlier, the Dow rose as much as 105 points and fell as much as 175 in fractious trading; on Monday, the Dow suffered its largest drop since the September 2001 terror attacks.
Broader stock indicators advanced. The Standard & Poor's 500 index rose 11.27, or 0.94 percent, to 1,203.97, and the Nasdaq composite index rose 15.28, or 0.70 percent, to 2,195.19.
Bond prices fell sharply as investors turned away from the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.49 percent from 3.41 percent late Monday.
Light, sweet crude fell $3.70 to $92.01 on the New York Mercantile Exchange as investors placed bets that slowing economic growth will crimp demand. The dollar was mixed against other major currencies, while gold prices fell.
