Post-Fed Selloff
08/08/06 - 04:48 PM EDT
Robert Holmes
Updated from 4:13 p.m. EDT
Stocks ended to the downside Tuesday after the Federal Reserve took a break from its two-year interest rate-hiking campaign but left the door open for future increases. The market was erratic in the immediate aftermath of the central bank's latest meeting before turning solidly lower. The Dow Jones Industrial Average lost 45.79 points, or 0.41%, to 11,173.59, having been up by as many as 57 points earlier. The S&P 500 fell 4.29 points, or 0.34%, at 1271.48, and the Nasdaq Composite closed down 11.65 points, or 0.56%, to 2060.85. The Federal Open Market Committee decided to keep its federal funds target unchanged at 5.25%, an outcome that had been expected by many on Wall Street. Going back to June 2004, policymakers had lifted rates by a quarter-point at every one of their meetings. Along with the rate increase, the FOMC said in a statement that recent indicators showed "economic growth has moderated from its quite strong pace earlier this year. The committee also said "inflation pressures seem likely to moderate over time, reflecting contained inflation expectations and the cumulative effects of monetary policy actions and other factors restraining aggregate demand." The FOMC reiterated its views on the possibility of further hikes, saying that the extent and timing of any additional firming "will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information." Art Hogan, chief market analyst with Jefferies, said the statement will keep the market closely watching future economic data. "In particular, the Fed still sees that some inflation risks remain," he said. "Although we don't have a rate hike now, we don't know what's coming for the next Fed meetings." Robert Pavlik, chief investment officer with Oaktree Asset Management, said the Fed left rates alone not because it has reached a neutral point but because it's concerned about "overshooting and forcing the economy into a recession." Pavlik believes this will "lead to additional selling pressure because market participants will be concerned with the overall slowdown in the U.S. economy." To view Gregg Greenberg's video take on today's market, click here.
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