By MARTIN CRUTSINGER
WASHINGTON (AP) â¿¿ In a surprise that sent the stock market soaring, the Federal Reserve concluded Wednesday that the U.S. economy isn't yet healthy enough for the central bank to ease its stimulus even slightly.
The Fed's cautious message pleased investors, who had expected a slight cut in the bond purchases that have kept long-term interest rates low as the nation recovers from the Great Recession. Wall Street celebrated the prospect of continued low interest rates by lifting stocks to a record high.
In a statement after a policy meeting, the Fed signaled it has no set timetable for reducing the stimulus, which has stood at $85 billion a month for the last year.Chairman Ben Bernanke explained later at a news conference that there are good reasons to be cautious: â¿¿ The Fed has yet to see conclusive evidence that the job market and economy are approaching full health. â¿¿ Mortgage rates have surged, and the bond purchases are needed to hold those rates down and keep home buying affordable for ordinary people. â¿¿ A budget stalemate in Congress and the threat of a government shutdown as soon as next month are holding back growth and putting the economy at risk. "Conditions in the job market today are still far from what all of us would like to see," Bernanke said. Stocks spiked immediately after the Fed released its statement at the end of its two-day policy meeting. The Dow Jones industrial average jumped 147 points, or 1 percent. The Fed's decision to maintain the pace of its purchases raised hopes for lower rates on bonds and consumer and business loans. Bond yields sank. The yield on the 10-year Treasury note fell to 2.71 percent from 2.85 percent, the biggest one-day drop in nearly two years. Since May, when Bernanke first signaled that the Fed could reduce its bond purchases this year, average rates on long-term fixed mortgages have climbed more than a full percentage point to near two-year highs. The average on the 30-year mortgage is at 4.57 percent, according to Freddie Mac.