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Stocks Hit All-Time Highs as Bernanke Goes Out Tapering

NEW YORK (TheStreet) -- U.S. stocks surged to all-time highs Wednesday as the Federal Reserve reinforced confidence about a broader economic recovery and maintained a highly accommodative stance by electing to curb its stimulus program by $10 billion. Chairman Ben Bernanke said recent improvements in U.S. employment convinced the central bank that it was appropriate to reduce the size of the program.

The Fed announcement caught some market participants by surprise. About 33% of economists were expecting a market taper in December, according to a UBS report.

  • The S&P 500 popped 1.7% to 1,810.71, a record closing high. The Dow Jones Industrial Average surged 1.9% to 16,168.29, which was also an all-time closing high for the index. The Nasdaq finished up 1.2% to 4,070.06.
  • Bernanke said that he has "always consulted closely" with incoming Fed Chair Janet Yellen and "she fully supports what we did today."
  • He now emphasizes that rates will not be raised until "well past the time that the unemployment rate declines below 6.5%."
  • Bernanke said that $10 billion will be the general range for future incremental tapering, but emphasized flexibility based on data. "If the economy slows for some reason, we could skip a meeting or two. If things really pick up then we go a bit faster. Our expectation is for similar modest steps going forward throughout 2014."
  • The Fed said in its statement that it will now add to its holdings of agency mortgage-backed securities at a pace of $35 billion a month rather than $40 billion per month and will add to its longer-term Treasury holdings at $40 billion per month rather than $45 billion per month.
  • Economic activity is expanding at a moderate pace, labor market conditions have further improved, and the jobless rate has declined but remains elevated.
  • The Federal Open Market Committee reaffirmed the federal funds rate at 0 to 1/4 percent for as long as the unemployment rate remains above 6 1/2%, inflation one to two years ahead is projected to be no more than a half percentage point above the committee's 2% longer-run goal, and longer-term inflation expectations continue to be well-anchored.
  • Eric Rosengren voted against the action. He believes that changes in the purchase program are premature in the face of the still elevated jobless rate and inflation staying well below target.
  • The 10-year Treasury was dropping 12/32, bolstering the yield to 2.886%.

-- Written by Andrea Tse and Joe Deaux in New York.

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