NEW YORK (AP) — Stocks shifted between small gains and losses Wednesday morning as traders tried to anticipate what steps the Federal Reserve might take to stimulate the U.S. economy.
Concerns that Greece could fail to qualify for fresh bailout funds kept gains muted.
The Federal Reserve expects to announce the results of the central bank’s two-day policy meeting Wednesday afternoon.
Some analysts expect the Fed to announce a plan to sell short-term Treasurys and buy longer-term issues in order to push down interest rates on long-term government debt. The policy has been dubbed “Operation Twist” because it is designed to “twist” long-term rates relative to shorter ones. Such a move could lead to lower interest rates on mortgage rates and loans. The Fed could also say it will stop paying interest on the bank reserves it holds in the hopes that banks will lend more money to consumers and businesses in search of higher yields.
Economists have expected the Fed to decide on some type economic stimulus measures ever since it said last month it would extend its meeting by a day.
The International Monetary Fund said Wednesday the global financial system at its most vulnerable since the 2008 financial crisis. In a semi-annual report, the IMF said risk has been ramped up in banks and financial markets in recent months. While the news sounds bleak, it may signal to investors that the Fed will be even more inclined to take stimulus steps, something most investors want.
Disagreement both within the Fed and outside it about how much the central bank should intervene in the economy has fueled uncertainty about Wednesday’s announcement. Three Fed officials have opposed new stimulus measures, saying they enhanced the risk of inflation. On Monday, the four highest-ranking Republicans in Congress took the unusual step of sending a letter to Bernanke cautioning against pushing interest rates lower for the same reason.
Investors are also focused on concerns about Europe’s spreading debt crisis. After two days of meetings, Greek finance ministers haven’t been able to secure the $11 billion installment of its 2010 rescue package needed to avoid defaulting on its debt by next month. Greece will have to meet strict budget targets set by international lenders in order to qualify for the funds.
Greek Finance Minister Evangelos Venizelos said Wednesday that the country will have to enact more austerity measures than the unpopular tax hikes and spending cuts it has already made.
Greece has come so close to default that even if it is able to secure this latest round of rescue funds, many economists think the country will default eventually. That would have repercussions for other European countries struggling with heavy debt and for the global banking system.
Fifteen minutes after the opening bell, the Dow Jones industrial average fell 15 points, or 0.1 percent, to 11,394. The Standard & Poor’s 500 index fell less than one point, to 1,201. The Nasdaq composite rose 12 ,or 0.5 percent, to 2,602.
Oracle Corp. rose 6.7 percent, the most of any stock in the S&P 500, after reporting late Tuesday that stronger sales of its business software pushed quarterly profit above Wall Street expectations.
Google Inc. rose 1 percent of afternoon testimony by CEO Eric Schmidt before a Senate subcommittee. Schmidt will be asked whether Google is unfairly curbing competition by favoring its own products in search results.
Adobe Systems Inc. rose 3.2 percent after the software company said it expects to earn more in its fiscal fourth quarter than analysts had predicted.
Alpha Natural Resources Inc. lost 8 percent after the miner said an unexpected drop in demand from Asia and production shortfalls would reduce its coal shipments.