Commodities up amid inflation worries

The Toronto stock market was higher Wednesday and commodity prices gained ground as the U.S. Federal Reserve launched another dose of economic stimulus.

The U.S. central bank also tied its record low interest rates to a specific level of unemployment.

The S&P/TSX composite index rose 70.74 points to 12,353.09 led by a strong run up in gold stocks as inflation worries grew after the Fed announced a new bondbuying program to replace one that’s about to expire.

TSX Venture Exchange was up 1.01 points at 1,184.94.

The Canadian dollar rose 0.15¢ to US101.55¢.

But despite the fresh stimulus and greater certainty about rates, New York indexes were tepid as Fed chairman Ben Bernanke warned that the U.S. economy is already being hurt by the “fiscal cliff ” standoff in Washington.

The cliff scenario involves an end-ofyear deadline when automatic spending cuts and tax increases are set to take place. With economic growth already weak, the worry is that the two moves would send the U.S. back into recession, sending shockwaves around the world.

However, he added that the Fed believes the crisis will be resolved without significant long-term damage.

The Dow Jones industrials slipped 2.99 points at 13,245.45, the Nasdaq shed 8.49 points at 3,013.81. The S&P 500 index rose 0.64 of a point to 1,428.48.

Bernanke repeated his belief that if the scheduled tax hikes and spending cuts do take effect in January, they will have a significantly adverse effect on the economy, regardless of what the Fed might do.

And he warned the Fed cannot blunt the full impact of the fiscal cliff, saying “it’s just too big.”

The Fed also said it would keep its key rate at 0.25% as long as the jobless rate stays above 6.5%. The Fed had previously committed to keeping the rate unchanged until the end of 2015.

“That is still likely consistent with rates remaining on hold until mid-2015, unless prospects shift materially,” said CIBC World Markets senior economist Peter Buchanan.

The Fed’s latest stimulus program involves spending US$45 billion a month on Treasury securities. It will complement an existing program where the Fed buys mortgage backed securities to the tune of $40 billion a month.

The central bank has launched three rounds of quantitative easing since the financial crisis hit in 2008 and they have been widely credited with strengthening financial markets.