NEW YORK An already soaring Wall Street extended its advance Tuesday after the Federal Reserve left interest rates unchanged and assuaged some of the market's fears about the economy. The Dow Jones industrial average shot up more than 330 points, and all the major indexes had gains approaching 3 percent.
The market was already enjoying a big rally before the Fed meeting, as investors responded to a report that services sector activity fell less than expected last month and to another drop in oil prices that took crude as low as $118 a barrel .
But the Fed gave stocks a huge push higher in the last hours of trading. In a statement accompanying its widely expected rate decision, the Fed reported that "economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports." That assessment was welcome news to a market that has feared the economy was falling into recession because of weak consumer spending.
The Fed did have some darker news, stating that "inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities." But it also said it expected inflation to moderate later in the year.
"The wording is a little strong over inflation, but there's really no real change in policy," said Brian Gendreau, investment strategist for ING Investment Management. "I think they are trying to buy time to allow the economy to recover, and so that the financials can slowly repair."
Ryan Larson, senior equity trader at Voyageur Asset Management, said he believes the central bank will keep rates on hold until the early part of 2009. He said of Fed officials, "they seem more concerned about growth for the rest of this year, and I'd say right now they appear to be dovish for the short term."
The oil market also helped soothe some of Wall Street's worries crude fell as low as $118 a barrel before settling at $119.17, down $2.24 on the New York Mercantile Exchange. Oil has now fallen $28 from its July 11 high of $147.27 on widening expectations that the slumping U.S. economy will keep curbing consumer demand for gasoline and other petroleum products.
Stocks had plunged as oil reached new heights; the fear on Wall Street was that higher prices for fuel would curtail consumer spending, which accounts for more than two-thirds of the economy.
According to preliminary calculations, the Dow rose 331.62, or 2.94 percent, to 11,615.77. It was up about 225 points shortly before the Fed's 2:15 p.m. EDT announcement.
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