Wall Street closed at an all-time high today as the Federal Reserve announced that, to everybody’s surprise, it won’t cut back its stimulus initiatives until the economy improves further.
Citing the economy’s sluggish recovery, the bank said Wednesday that it will continue to purchase $85 billion in bonds per month in an effort to keep interest rates low and boost employment. That program was launched last year, but the Fed announced over the summer that it was planning to roll back its asset purchases by the end of 2013. However, the body ultimately concluded that the pace of economic growth hasn’t been robust enough to warrant halting the stimulus.
“[T]he Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy,” the Fed said in a statement. “However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.”
As a result of today’s decision, the S&P 500 hit a record high of 1,729.44. The Dow Jones industrial average climbed more than 100 points, ending the day at 147 points, and the Nasdaq grew one percent, hitting its highest level in 13 years.
The Fed’s decision to continue the stimulus also bodes well for Janet Yellen’s chances at becoming the next chair of the body. President Obama was expected to appoint Larry Summers to the position, but Summers ultimately withdrew his name amidst aggressive liberal opposition. Yellen, on the other hand, is beloved by progressives and was a vocal proponent of continuing the stimulus.
“Part of the reason today's move shocked Wall Street is that this is a much different Fed from the one most traders are used to dealing with,” wrote Kevin Roose at New York Magazine. “It’s a more compassionate Fed, a more holistic Fed, and a Fed that sees its role as not only fulfilling the official mandate of price control and low unemployment, but as filling the gaps where legislators are failing.”