U.S. stocks rallied 1% across the board after the Federal Reserve announced it will not reduce its $85 billion monthly asset purchasing program. The unexpected decision propelled the Dow Jones Industrial Average (^DJI) and the S&P 500 (^GSPC) to close at fresh record highs, topping the previous records of 15,658 and 1,709, respectively; both set on August 2nd. The Nasdaq (^IXIC) rose 1% to close at a 13-year high of 3,783. And gold prices saw even greater gains than stocks rising over 4% to $1,360 an ounce in after hours trading.
The Fed's decision came as a big surprise to many on Wall Street who were expecting a $10 billion to $20 billion reduction in monthly stimulus.
In a news conference late this afternoon, Fed chairman Ben Bernanke said recent economic data has not provided sufficient reason to begin scaling back stimulus. Further, he insinuated that Washington, DC could be factoring into the central bank's decision-making process, stating "upcoming fiscal debates may involve additional risks."
The Fed voted 9-to-1 in favor of sticking to its open-ended quantitative easing program saying more progress in the economic recovery is needed. The committee lowered its growth projections, forecasting GDP of 2.0-2.3% this year, down from its prior view of 2.3-2.6%. Looking further out, growth is projected to range from 2.9 -3.1% in 2014 and accelerate to 3.0-3.5% in 2015. Meanwhile, the outlook for unemployment improved slightly. The Fed sees the jobless rate at 7.1-7.3% for 2013 and 6.4-6.8% for 2014. Inflation remains stable, showing little sign of threatening to rise above the 2% threshold.
Bernanke didn't close the door on tapering. The central bank still has two more meetings before year-end. He stated:
“We could begin later this year, but even if we do that, the subsequent steps will be dependent on continued progress in the economy...So we are tied to the data. We don’t have a fixed calendar schedule.”
The next FOMC meetings are scheduled for October 29-30 and December 17-18.
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