A reduction in stimulus had been widely expected, but these forecasts were off the mark, as the Fed surprised the market by deciding to keep its monthly bond purchases intact. The statement issued by the Fed acknowledged that inflation has been running below target and that rising mortgage rates and fiscal cutbacks have been a drag on growth.
The Fed said that ‘the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market’ and that ‘the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases’.
The Fed will therefore continue to purchase $40 billion of mortgage-backed securities per month along with $45 billion of longer-term Treasuries per month.
The NASDAQ 100 rose along with the Dow and the S&P, advancing 1%. The index was helped by a 1.8% rise in Apple, the largest component in the index by capitalisation. The rise in Apple comes as iOS 7 becomes available and follows the first reviews of the new iPhones.
Oracle reports earnings after the close on Wall Street tonight, with earnings of 53 cents per share expected.