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Fed Bullish, Not Dovish

01/31/07 - 04:44 PM EST

Liz Rappaport

The Federal Open Market Committee's decision Wednesday to keep the overnight borrowing rate steady at 5.25% was no surprise. But the tone of the accompanying policy statement was a startling change of pace for the central bank, and a welcome relief for the financial markets.

The FOMC altered its depiction of the current economy to acknowledge both the strong growth that took shape in the fourth quarter of 2006 and lower inflation readings. The stock market rallied sharply when the statement was released and traders assessed it as less hawkish than expected.

"This is kind of like the best possible Fed statement you could get without a major change in the fed funds rate," says Art Hogan, chief market analyst at Jefferies & Co. That makes it bullish, but not dovish, he adds. "We have to characterize this as having a tightening bias."

The Dow Jones Industrial Average spent the day in the green, buoyed by a strong earnings report from BoeingBA, whose shares rose 4.2%. But the Dow soared to a triple-digit gain within minutes of the FOMC statement, closing up 0.8% at 12,621.69, just shy of an all-time closing high.

The S&P 500 and the Nasdaq Composite jumped into positive territory following the 2:15 p.m. EST release of the Fed statement. The S&P closed up 0.7% at 1438.24, and the Nasdaq gained 0.6% to close at 2463.93.

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In keeping with TSC's editorial policy, Rappaport doesn't own or short individual stocks. She also doesn't invest in hedge funds or other private investment partnerships. She appreciates your feedback. Click here to send her an email.

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