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Wall Street gets green light

Traders shout orders in the euro dollar options trading pit Thursday at the Chicago Mercantile Exchange. Markets around the country we buoyed after the Federal Reserve raised interest rates for the 17th consecutive time (Associated Press / The Spokesman-Review)
Christopher Wang Associated Press
Traders shout orders in the euro dollar options trading pit Thursday at the Chicago Mercantile Exchange. Markets around the country we buoyed after the Federal Reserve raised interest rates for the 17th consecutive time (Associated Press / The Spokesman-Review)

NEW YORK — This time, Wall Street believes, it’s for real.

Investors who spent months hoping in vain for the Federal Reserve to end its string of interest rate hikes got a sign Thursday that the central bank might indeed be done. While the Fed raised short-term rates for the 17th time in two years, it also indicated in a statement that it would consider the overall health of the economy, and not just its long battle against inflation, as it sets its rate policy in the months ahead.

A stock market weary of rate increases and continually disappointed by Fed statements this year celebrated Thursday, sending the Dow Jones industrial average up 217 points, its biggest jump in more than three years.

No one can be certain that Chairman Ben Bernanke and other Fed officials really are about to stop raising rates — and the Fed’s Open Market Committee did reiterate its concerns about inflation. But the Fed’s statement noted that economic growth has slowed, and it acknowledged that this would be a factor along with inflation in its upcoming rate moves.

“It’s the first time the Fed has connected the weaker growth with the outlook for inflation,” said Markus Schomer, economist for AIG’s Global Investment Group. “That’s very positive for the outlook going forward.”

The Fed boosted short-term lending rates by a quarter-point to 5.25 percent, and many investors have already factored another increase when the FOMC meets in August. But after that, the market believes, the rate hikes may finally end.

The Dow surged 217.24, or 1.98 percent, to 11,190.80, its biggest single-day jump since March 21, 2003, when it added 235.37 points. The Dow was up about 80 points before the Fed’s announcement.

Broader stock indicators also saw their best sessions in years. The Standard & Poor’s 500 index climbed 26.87, or 2.16 percent, to 1,272.87, its largest gain since rising 29.52 on March 14, 2003; the Nasdaq composite index jumped 62.54, or 2.96 percent, to 2,174.38, behind a 73.13-point advance on July 27, 2002.

Advancing issues topped decliners by more than 5 to 1 on the New York Stock Exchange, where volume of 1.89 billion shares led the 1.5 billion shares that changed hands Wednesday.

Bonds also rose on the Fed’s statement, with the yield on the 10-year Treasury note tapering to 5.2 percent from 5.25 percent late Wednesday.

The 2-year yield dropped to 5.2 percent, a signal of heightened confidence in holding long-term debt.

The big advance on Wall Street followed weeks of wildly erratic trading, particularly after Bernanke earlier this month acknowledged that high energy prices could propel inflation.

While the Fed statement left open the possibility of more rate hikes, “I think the overall tone sounds a little less hawkish,” Schomer said.

The Russell 2000 index of smaller companies rose 26.28, or 3.82 percent, to 714.32.

In overseas trading well before the Fed’s announcement, Japan’s Nikkei stock average surged 1.58 percent. Britain’s FTSE 100 climbed 1.99 percent, Germany’s DAX index added 2.29 percent and France’s CAC-40 was higher by 2.23 percent.