Wall Street up as Fed raises rates but stays course

NEW YORK: US stocks rose sharply after the Federal Reserve raised interest rates for the second time in three months, as expected.

The Fed, which raised its target rate by 25 basis points, or a quarter of a percentage point, to between 0.75 and 1.00 per cent, did not however flag any plan to accelerate the pace of monetary tightening, a concern that had lingered among some market participants.

Markets were expecting the Fed’s decision and traders had priced in more than a 90 percent chance of a quarter-point rate increase, according to federal funds futures.

“People were thinking the Fed might be more aggressive, so the fact that they weren’t means more complacency and a continued course,” said Eric Schoenstein, co-portfolio manager of the Jensen Quality Growth Fund in Portland, Oregon.

“The statement was not as hawkish as it might have been.”

During her press conference after the meeting, Fed Chair Janet Yellen pointed to the stock market as an indicator of easing financial conditions, which some could take as a sign that stock valuations are not yet at stress levels.

“She cast the market’s role as a positive one on consumer balance sheets and left it at that. It will be read as an implicit endorsement of current valuations, which many consider quite high,” said Nicholas Colas, chief market strategist at Convergex, a global brokerage company based in New York.

The Dow Jones Industrial Average rose 112.73 points, or 0.54 percent, to 20,950.1, the S& P 500 gained 19.81 points, or 0.84 per cent, to 2,385.26 and the Nasdaq Composite added 43.23 points, or 0.74 per cent, to 5,900.05.

The Russell 2000 index of smallcap stocks rose 1.5 per cent, while financials on the S& P 500 were the worst-performing sector. — Reuters