Shortly after the opening bell, the Dow Jones Industrial Average surged 172.02, or 1.14%, at 15,242.20. The Standard & Poor's 500 Index soared 16.43, or 1.01%, at 1,643.16. The Nasdaq jumped 40.11, or 1.17%, at 3,463.67.
fomc meeting dates
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The Federal Open Market Committee (FOMC) meeting concluded today (Wednesday) with one clear message to Washington: Thanks for the lousy economy.
Central bank members cited only "moderate" expansion in economic activity and a slow improvement in the stubbornly high unemployment level.
Acknowledging the economy is moving at an unhurried pace, the FOMC members pointed an accusing finger at Capitol Hill.
"Fiscal policy is restraining economic growth," the statement read. That remark was in direct reference to a deadlocked Congress, sequestration and its far-reaching impact.
A spate of fresh economic reports back that sentiment:
It's clear from the leaked Federal Open Market Committee (FOMC) meeting minutes that the Fed isn't taking away the punchbowl quite yet - but investors can take steps now to be prepared for an eventual sign that quantitative easing will end.
The FOMC meeting minutes show the central bank remains divided on when to end QE and raise interest rates.
The Fed's current policy of buying $45 billion in Treasuries and $40 billion in mortgage-backed securities monthly will remain in place at least through midyear. Near-zero interest rates also look safe until 2015.
The Fed has held short-term rates at historic lows since 2008, with a goal of juicing the anemic U.S. economy. The Fed minutes reiterated that Bernanke and company will keep rates super low until the unemployment rate dips below 6.5% or inflation rises above 2.5% a year.
The monthly March jobs report, released after the March 19-20 Fed meeting, showed a significant slowdown in job creation. While the unemployment rate ticked down to 7.6% from 7.7%, the rate decreased largely because a huge number of people stopped looking for work.
The glum employment data could even extend the Fed's 2015 date to raise interest rates.
As expected, the U.S. Federal Reserve decided on Wednesday to keep interest rates at historic lows and to continue with its $85 billion in monthly bond-buying stimulus, despite a more optimistic labor outlook.
It was a near-unanimous 11-1 vote in favor of the decision, announced at the conclusion of the two-day FOMC meeting. Kansas City Fed President Esther George was the sole holdout.
The Fed said that while fresh information since the January FOMC meeting suggests "a return to moderate economic growth following a pause late last year, fiscal policy has become somewhat more restrictive."
In defense of its ongoing bond buying, the statement read, "To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month."
The aim remains the same: "to maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader conditions more accommodative."
Financial markets have sometimes been turbulent after the release of the Federal Open Market Committee (FOMC) meeting statement.
For example, when the U.S. Federal Reserve announced on Aug. 9, 2011 to keep interest rates at a record low, the Dow plunged 205 points. Then before market close it turned around and closed 429.92 points, or 4%, higher.
According to former Fed governor Laurence Meyer, FOMC meeting statements on monetary policy are the second biggest market-moving events. FOMC meeting minutes releases are the first.
But the Fed is trying to change that.
In fact, the Fed will now issue its statement at 2 p.m., to give Chairman Ben Bernanke an opportunity to better control the message it sends to financial markets. Usually there are a couple hours that pass between the statement release and Bernanke's press conference.
"They probably did some research and said the market has periods of increased volatility right after the announcement," Robert Pavlik, chief market strategist at Banyan Partners, told the Associated Press. "Well, of course there's going to be. That's the way it works."
The Fed hopes the decreased time lapse will allow chief Bernanke to shed more light on Fed policy and prevent wild market swings based on speculation or concern.
"They are trying to be more open and work with the market to some degree. It's probably a good thing," said Pavlik. "You don't want to give away the store but to try to get their message across so that people can understand it in real time makes a lot of sense. Maybe, if they could put it in language that the average man can understand, instead of double-Fed-talk, it would probably make even more sense."
But no such clues were shared.
Last month the Federal Reserve decided to extend Operation Twist, a bond maturity extension program. But many investors wanted a third round of asset buying, or QE3, instead of more twisting.
Immediately following details of the June FOMC meeting, the Dow Jones Industrial Average, which had been choppy all day, was little changed. Then came the negative reaction and all three major indexes ticked lower, and the VIX, the "fear index," edged higher. The Dow fell as much as 90.14 points, or 0.7%, to 12,562.98 in afternoon trading.
Though QE3 is not completely out of the question, things need to deteriorate further for the Fed to even consider more bond purchasing as a means of stoking the economy, according to the FOMC meeting minutes.
Just four Fed officials referred to more quantitative easing in their individual forecasts, with two in favor and two considering another round.
Had that FOMC meeting been held today, maybe more officials would have supported a heavier stimulus measure. Since that meeting, fresh data have shown manufacturing is weak and unemployment levels are still elevated - and look to move higher.
In addition, economists have drastically reduced second-quarter growth estimates amid the weaker-than-expected numbers.
This has left scores scratching their heads asking how much worse things need to get before the Fed makes a move.
The minutes also show that several Fed officials want to create "new tools" to ease financial conditions. With little left in their cache to give the economy a much needed boost, "new tools" are warranted, but scarce at best.
After more than three years of trying to rouse the economy, hiring remains weak, unemployment is still elevated, and economic growth has ebbed.
As the Fed concludes its two-day policy meeting today, it needs to act sooner rather than later - and may be ready to do so.
"I think Fed officials will send a pretty decisive signal that they are prepared to provide more support to boost economic growth and lower unemployment," Brian Bethune, economics professor at Gordon College in Massachusetts, told the Associated Press.
Here is a trio of scenarios Team Bernanke could present.
What Could Happen at Today's FOMC Meeting
#1: The Fed Continues Operation Twist
There's a good chance the Fed will decide to continue its previous monetary stimulus method, "Operation Twist."
Under this strategy, the Fed traded $400 billion in short-term bonds for those with longer maturities. The goal of the twist is to drive down long-term interest rates.
This creates an environment that makes it cheaper for businesses to obtain loans and for consumers to get a hold of mortgages and other forms of credit.
Goldman Sachs Group Inc.'s (NYSE: GS) chief economist Jan Hatzius said in an e-mail to clients he expects the Fed to start a new asset purchase program.
"A decision not to ease is tantamount to a tightening. At this point we'd be quite surprised if we saw no easing," said Hatzius.
- U.S. Federal Reserve Chairman Ben S. Bernanke will announce some form of economic stimulus.
- But the short-term benefits will be small, and any long-term benefits won't be enough to help out-of-work Americans or jump-start the wheezing U.S. economy.
Troubling TrendsIf anything, the nation's economy looks worse today than it did on Aug. 9, which is when central-bank policymakers last met. The "official" unemployment rate remains at an alarming 9.1% - with no jobs added in August - and true joblessness may range from 17% to 23%. Housing starts declined last month by the greatest amount since April. And the International Monetary Fund (IMF) just downgraded its U.S. growth forecast to 1.5% from 2.5% [To see related story in today's issue, please click here].
The spreading European sovereign debt crisis continues to whipsaw stocks, oil prices and gold. And several dramatic single-day plunges - in stocks and in gold - spooked investors for days after the event.
Bernanke feels pressure to act, but the odds that Federal Reserve policy can make a meaningful splash are low indeed, Money Morning's Fitz-Gerald says.
What to Expect From Today's FOMC MeetingSince the Fed's actions have so far done little to ignite economic growth, investor expectations were muted ahead of today's FOMC meeting conclusion.
"It looks like the market is baking in an announcement of some kind of quantitative-easing strategy," Deirdre Dennehy, portfolio manager at Rockland Trust, said in an interview. "[But] for them to announce a QE3, I'm not sure how impactful that's going to be. The more times they do that, the less the effect in the market."
Analysts expect the Fed will attack longer-term rates by adjusting its $1.7 trillion portfolio of U.S. Treasury securities.
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