An early advance in stocks stalled Wednesday as the Federal Reserve reminded investors that it would start to wean the economy from an array of emergency supports next year.
Investors knew several of the programs would be dismantled next year, but policymakers hadn’t confirmed the precise timing.
The prospect of an eventual increase in interest rates and an improving economy pulled the dollar off its lows of the day. The dollar has been sliding for most of nine months but reached a two-month high on Tuesday. As the dollar pared its losses in afternoon trading, stocks began to lose steam.
Most stocks rose for the day, though the Dow Jones industrials slipped 11. Broader indexes gained.
The modest moves came as the Fed said it would leave interest rates near zero, as expected, but officials also noted that weakness in the job market is “abating.” Fed governors made the assessment following a two-day meeting on interest rates.
Investors parse Fed statements to see how policymakers are viewing the economy and for clues about when the central bank might raise interest rates. Ultra-low borrowing costs have pushed stocks higher this year and helped weaken the dollar.
Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, said a drop in layoffs in November is giving the Fed more room to discuss dousing any signs of inflation by cutting off some of the money it is pumping into the economy.
“It marks the time when their emphasis is going to have to be a little more balanced between unemployment and inflation,” he said.
Stocks had been higher ahead of the Fed’s announcement after a benign reading on consumer price inflation eased concerns that the Fed would be forced to raise interest rates any time soon. The statement from the central bank reinforced that notion. The Fed repeated that inflation is likely to remain under control and that interest rates would remain low for “an extended period.”
The government reported that consumer prices excluding food and energy were flat in November, signaling that inflation isn’t working its way into the economy. It was the first time that “core” inflation was unchanged after 10 monthly increases. Stocks fell for the first time in five days on Tuesday as prices at the wholesale level jumped.
According to preliminary calculations, the Dow Jones industrial average fell 10.88, or 0.1 percent, to 10,441.12.
The broader Standard & Poor’s 500 index rose 1.25, or 0.1 percent, 1,109.18. It is up 22.8 percent for the year.
The Nasdaq composite index rose 5.86, or 0.3 percent, to 2,206.91.
Bond prices mostly fell, pushing yields higher, following the Fed’s more upbeat assessment of the economy. The yield on the benchmark 10-year Treasury note rose to 3.61 percent from 3.60 percent late Tuesday. Prices had been higher ahead of the Fed’s announcement.
Copyright 2009 The Associated Press.
