Stocks surged to session highs Tuesday (Aug. 10) as Wall Street digested the Federal Reserve’s widely anticipated move to lift rates by a quarter of a percentage point.
The unanimous decision by the U.S. central bank’s policy-setting Federal Open Market Committee (FOMC) moves the benchmark federal funds rate, which influences credit costs throughout the economy, to 1.5 percent.
The benchmark prime interest rate may increase by the same amount and some financial sources were listing the prime at 4.50 Tuesday afternoon.
The Dow Jones Industrial Average extended early gains to triple-digits following the decision as the blue chip gauge closed up 130 points to 9,944. The Nasdaq Composite Index was up 34 points and the S&P 500 jumped 13 points.
The Fed’s rate increase was the second straight quarter-point rise this year, and came despite anemic job growth in July as well as oil prices that hit records above $45 a barrel on Tuesday.
A statement from the Open Market Committee acknowledged a “softness” in the economy, mainly attributed to oil prices, but added, “The economy nevertheless appears poised to resume a stronger pace of expansion going forward.”
The committee also repeated earlier language that rate increases can proceed at a measured pace.
There was no immediate consensus among Fed watchers about the tenor of the statement. Many economists said the Federal Reserve had given itself the necessary wiggle room to hold rates steady in coming months if the economy continues to disappoint.
In a report on CBS MarketWatch, Jeff Kleintop, Chief Investment Strategist at PNC Advisors, called the decision “the right move,” and believes markets are happy to get past another uncertainty.
“I think the Fed sent a very confident message that it feels that, despite the rise in energy prices, the economy is poised to resume a stronger pace of expansion,” Kleintop said. “I think that’s a bit of what the market wanted to hear and certainly acknowledges the softness in recent data but in a way brushes that aside as attributable to transitory effect like energy prices.”