NEW YORK - Wall Street wobbled, then regained its stride yesterday after the Federal Reserve told investors what they expected to hear: that inflation is still too high for comfort, but the central bank is holding interest rates steady. The Dow Jones industrials rose to another record close.
The central bank's Open Market Committee left interest rates unchanged at 5.25 percent, as it has done since last summer. The statement that accompanied the decision was little changed from the one the Fed released after its last meeting in March; the assessment said policymakers were keeping their inflation watch the priority despite a slower economy.
Though some investors were hoping the Fed would raise the possibility of a future rate cut, they were not surprised by the committee's stance. Moreover, they were relieved to hear the Fed was not more inclined than it had been to raise rates, a move that would make access to capital more expensive and potentially hurt the stock market.
"The Fed said we're not going anywhere," said Larry Smith, chief investment officer at Third Wave Global Investors L.L.C. "They're not saying inflation is going to the moon, they're not saying it's a huge problem right now, but they're concerned that inflation won't come down to their comfort range."
Stocks drew support yesterday from more takeover news, particularly speculation about a possible bid by mining company BHP Billiton Ltd. for rival Rio Tinto Group. Investors also were pleased by a government report showing that after three months of declines, the nation's gasoline inventories rose last week. If inventories keep increasing, fuel costs for U.S. drivers are likely to ease.
The Dow Jones industrial average rose 53.80, or 0.40 percent, to 13,362.87, after reaching a new trading high of 13,369.29. It was the blue-chip index's 21st record close since the beginning of the year.
The Standard & Poor's 500 index advanced 4.86, or 0.32 percent, to 1,512.58 - a new 61/2-year high. The index is near its closing record of 1,527.46, reached on March 24, 2000.
The Nasdaq composite index rose 4.59, or 0.18 percent, to 2,576.34.
The stock market has reacted well to the Fed's rate stance; the Dow has hit 43 record closes since the start of October, soon after the Fed stopped raising rates.
"I think the markets can react favorably without the Fed lowering rates," said Steven Goldman, chief market strategist at Weeden & Co. L.P., asserting that rates would remain stable as long as the economy kept growing moderately and inflation did not accelerate too much. "We walk this tight line, and equities continue to edge higher," he said.
Though market participants are not expecting a rate increase anytime soon, they will be closely reading tomorrow's report on producer prices and next week's data on consumer prices to gauge whether inflation is accelerating or moderating.