Stocks Surged to 2-Year High After Fed Decision

November 04, 2010

Stocks surged in the United States Thursday, Nov. 4, a day after the Federal Reserve’s decision to buy more government securities to stimulate the economy. the Dow was up 1.96 percent, at 11,437.84, while the Standard & Poor’s 500-stock index rose 1.93 percent, to 1,221.06. 

Wednesday’s reaction to the Fed announcement was muted, although it was enough to send the Dow up 26.41 points on Wednesday to its highest close in two years. On Thursday, as investors absorbed the impact of the announcement, financial markets in Europe and Asia rose, and the dollar weakened. 

Equities have rallied strongly since early September, partly in anticipation of action by the Federal Reserve.The Dow Jones industrial average has gained more than 14 percent in the last two months while the Standard & Poor’s index is up 16 percent. 

The pace of the Fed’s purchases was outlined as $75 billion a month for eight months. When combined with an earlier program announced in August, in which the Fed will be buying Treasury debt of about $250 billion to $300 billion by the end of June, the total purchases will be $850 billion to $900 billion. 

The Federal Reserve policy makers, by buying government bonds, will increase demand for them and by raising their prices, push long-term interest rates down. Ultimately, the Fed wants to address the dual issues of extremely low inflation and high unemployment at a time when it has few other policy options available.