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Positive Reaction To Fed Announcement Leads To Higher Close On Wall Street

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Stocks showed a lack of direction throughout much of the trading session on Wednesday but saw a positive reaction to the Federal Reserve's latest monetary policy announcement. Buying interest remained somewhat subdued, however, limiting the upside for the major averages.

The major averages managed to end the session modestly higher. The Dow crept up 29.58 points or 0.1 percent to 27,911.30, the Nasdaq climbed 37.87 points or 0.4 percent to 8,654.05 and the S&P 500 rose 9.11 point or 0.3 percent to 3,141.63.

The higher close on Wall Street came after the Federal Reserve announced its decision to leave interest rates unchanged after three straight rate cuts.

The decision was widely anticipated, although the Fed's economic projections provided along with the announcement also showed a majority of meeting participants now expect interest rates to remain on hold throughout 2020.

Fed Chairman Jerome Powell suggested during his post-meeting press conference that he would not consider raising rates until inflation picks up significantly.

"In order to move rates up, I would want to see inflation that's persistent and that's significant," Powell said. "A significant move up in inflation that's also persistent before raising rates to address inflation concerns. That's my view."

However, Powell noted his comments do reflect "official forward guidance," adding, "It happens to be my view that that's what it would take to want to move interest rates up in order to deal with inflation."

The Fed downwardly revised its forecast for core consumer price growth in 2019 to 1.6 percent from 1.8 percent, while the inflation estimates for the next three years were unchanged.

In its accompanying statement, the Fed said the current stance of monetary policy is appropriate to support a sustained economic expansion, strong labor market conditions, and inflation near its symmetric 2 percent objective.

The central bank maintained its assessment of the economy, reiterating that recent data indicates the labor market remains strong and that economic activity has been rising at a moderate rate.

The Fed also once again noted that while household spending has been rising at a strong pace, business fixed investment and exports remain weak.

The FOMC noted it will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path for rates.

The vote to leave interest rates was unanimous, as Kansas City Fed President Esther George and Boston Fed President Eric Rosengren joined in after voting against the past three rate cuts.

In U.S. economic news, a report released by the Labor Department showed consumer prices in the U.S. increased by slightly more than anticipated in the month of November.

The Labor Department said its consumer price index rose by 0.3 percent in November after climbing by 0.4 percent in October. Economists had expected prices to edge up by 0.2 percent.

Excluding food and energy prices, core consumer prices crept up by 0.2 percent in November, matching the uptick seen in the previous month as well as economist estimates.

Consumer prices in November were up by 2.1 percent compared to the same month a year ago, reflecting a notable acceleration from the 1.8 percent increase in October. The annual rate of core price growth was unchanged at 2.3 percent.

"A rise in energy prices pushed headline CPI inflation up to a one-year high last month, but the stability of core inflation suggests that underlying price pressures remain subdued," said Andrew Hunter, Senior U.S. Economist at Capital Economics.

He added, "In that environment, we expect the Fed to remain on the side-lines for a lot longer than today's FOMC meeting."

Sector News

Gold stocks moved sharply higher over the course of the trading session, driving the NYSE Arca Gold Bugs Index up by 2.7 percent. With the surge, the index ended the session at its best closing level in well over two months.

The rally by gold stocks came amid an increase by the price of the precious metal, with gold for February delivery climbing $6.90 to $1,475 an ounce.

Significant strength was also visible among semiconductor stocks, as reflected by the 2.2 percent jump by the Philadelphia Semiconductor Index.

Semiconductor equipment maker Photronics (PLAB) led the sector higher after reporting fiscal fourth quarter earnings that met estimates and providing upbeat fiscal first quarter guidance.

Oil service and housing stocks also saw some strength on the day, while biotechnology and commercial real estate stocks moved to the downside.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher on Wednesday, although Japan's Nikkei 225 Index bucked the uptrend and edged down by 0.1 percent. China's Shanghai Composite Index rose by 0.2 percent and Hong Kong's Hang Seng Index advanced by 0.8 percent.

The major European markets also saw some strength on the day. While the U.K.'s FTSE 100 Index closed just above the unchanged line, the French CAC 40 Index crept up by 0.2 percent and the German DAX Index climbed by 0.6 percent.

In the bond market, treasuries moved to the upside following this afternoon's Fed announcement. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 4.3 basis points to 1.790 percent.

Looking Ahead

Early trading on Thursday may continue to be impacted by reaction to the Fed announcement, although reports on weekly jobless claims and producer prices are also likely to attract some attention.

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