WASHINGTON — Stocks rallied Wednesday after the Federal Open Market Committee’s minutes showed the central bank would reduce its bond-buying stimulus to reaffirm “its view that a highly accommodative stance of monetary policy remains appropriate.”
Beginning this month, the Federal Reserve will purchase longer-term Treasury notes at a pace of $30 billion per month from the $35 billion it now buys, and mortgage-backed securities at $25 billion per month, from $30 billion.
The Fed indicated it would keep buying notes at that level until the economy shows substantial improvement in the labor market, dipping to a 6.5 percent unemployment rate and holding inflation at no more than 2 percent inflation. The current jobless rate is 6.7 percent.
It also plans to keep a low federal fund rate — the interest rate for short-term loans at depository institutions — in a range from zero to 0.25 percent for an extended period.
“I think the taper is going to continue,” Bob Iaccino, chief market strategist at Tethys Partners, said. “Janet Yellen is as dovish as people expected when she first got confirmed but not as dovish as she seemed before she took over.”
Bond prices marked down, with the benchmark 10-year Treasury note declining 2/32 and the yield surging to 2.7 percent
The Dow Jones Industrial Average surged 152.9 points, or 0.94 percent, to close at 16,409.04. The S&P 500 index rose 14.40 points, or 0.78 percent, to close at 1,866.36 and the Nasdaq Composite Index jumped 54.80 points, or 1.33 percent, to close at 4,167.79.
In a recent speech in Chicago, Fed Chairwoman Yellen said the Federal Reserve has taken “extraordinary steps since the onset of the financial crisis to spur economic activity and create jobs.” The Federal Open Market Committee consists of 12 members who review economic conditions to shape monetary policy. The goal of the Fed’s policy is to keep interest rates low to improve the housing market, auto industry and job creation.
With the quarterly earnings report for 2014 under way, expectations for the Q1 earnings season remain low as companies continue to lower their guidance. Total earnings for the first quarter are expected to be down 2.6 percent from the year-ago period, and total earnings for the S&P 500 are expected to decline 6.3 percent, according to a recent report by Zacks Investment Research.
Lowered expectations could spark a market correction, which could mean better returns for investors, Iaccino said.
“A correction within a bull market is a good thing,” Iaccino said. “As long as rates continue to rise in a slow, controlled fashion, we can get that correction. I think Q3 and Q4 are going to be great.”
Wholesale trade data, released Wednesday morning by the U.S. Census Bureau, showed sales rose 0.7 percent to $436.1 billion in February, which picked up from the 1.9 percent drop in January. Inventories increased 0.5 percent to $518.3 billion.