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Stocks rise on Fed policy statement

Associated Press

Wall Street enjoyed a solid advance Tuesday after the Federal Reserve raised short-term interest rates for the 10th time in a row but changed its policy statement to say longer-term inflation expectations are well contained, a hoped-for sign that the Fed’s streak of rate hikes may be nearing its end.

Stocks bumped higher after the Fed’s announcement although investors had expected the rate hike to 3.5 percent, a four-year high. The Fed signaled that at least one more rate increase is coming, but many investors expect three more.

Wall Street was also soothed as crude oil futures fell to $63.07 a barrel, down 87 cents, on the New York Mercantile Exchange. Oil hit a record intraday high of $64.27 Monday following the announcement the U.S. embassy in Saudi Arabia would close for two days due to threats.

Investors also cheered Labor Department data showing work force productivity rose at a slower rate than it had in the first quarter. Labor costs also grew at a slower rate than the previous nine months. Analysts are looking for the economy to grow at a moderate pace, since torrid growth might lead to inflation and even more interest rate hikes than anticipated.

The Dow Jones industrial average rose 78.74, or 0.75 percent, to 10,615.67 after three days of losses.

Broader stock indicators also advanced. The Standard & Poor’s 500 index rose 8.25, or 0.67 percent, to 1,231.38, and the Nasdaq composite index rose 9.80, or 0.45 percent, to 2,174.19.

Bonds rose, with the yield on the 10-year Treasury note at 4.39 percent, up from 4.42 percent late Monday, the highest yield since April. The U.S. dollar was up against the euro in European trading. Gold prices were higher.

In its policy statement, the Fed repeated its previous view that “pressures on inflation have stayed elevated” but added that “core inflation has been relatively low in recent months and longer-term inflation expectations remain well-contained.”

The market has spent most of the year nearly flat, which suggests investors are worried about energy costs, consumer spending, housing and the economy, in addition to interest rates, said Jeff Kleintop, chief investment strategist for PNC Financial Services Group in Philadelphia.

After strong second-quarter earnings and months of positive economic data, the market’s consensus is that the Fed’s rate hikes are justified. But, because of the other factors that could affect the economy, investors are split on whether the Fed’s hikes will be enough to contain inflation without causing a recession.

Advancing issues led decliners by roughly 3 to 2 on the New York Stock Exchange where volume was 1.36 billion shares, even with Monday.

The Russell 2000 index of smaller companies rose 0.88, or 0.13 percent, to 660.48.

Overseas, Japan’s Nikkei stock average rose 1.03 percent. In afternoon trading, Britain’s FTSE 100 was up 0.36 percent, Germany’s DAX index was up 1.48 percent, and France’s CAC-40 was up 1.14 percent.

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