U.S. stocks rally as Fed ditches rate hike target; Dow gains 1.11%


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Investing.com - U.S. stocks rallied on Wednesday after the minutes from the Federal Reserve's March policy meeting revealed monetary authorities unanimously agreed to ditch a target it was preparing to use to raise interest rates.

At the close of U.S. trading, the Dow 30 rose 1.11%, the S&P 500 index rose 1.09%, while the Nasdaq index rose 1.72%.

The Federal Reserve Board of Governors unanimously voted to scrap a threshold at which interest rates would rise once the unemployment rate hits 6.5%, according to the minutes of the Fed's March policy meeting.

In the past, the Fed had indicated rates could rise when the unemployment rate hits or approaches 6.5% provided that figure accompanied a 2.5% inflation rate.

Today, the headline unemployment rate stands at 6.7%, not far from the previous threshold, though inflation remains well below 2.5%, prompting the Federal Reserve to do away with its rate-hike target, which drew applause from Wall Street by allaying fears borrowing costs would rise while the economy still remained soft.

"Participants agreed that the existing forward guidance, with its reference to a 6.5% threshold for the unemployment rate, was becoming outdated as the unemployment rate continued its expected gradual decline," the minutes read.

"Most participants felt that the quantitative thresholds had been very useful in communicating policy intentions when employment was far from mandate-consistent levels, but, with the economy having moved appreciably closer to maximum employment, the forward guidance should emphasize that the Committee is focusing more on a broader set of economic indicators."

Stocks shot up on the news, as Fed Chair Janet Yellen has said that policy must remain accommodative for some time to come.

The March policy meeting minutes reflected that stance.

"With respect to forward guidance about the federal funds rate, all members judged that, as the unemployment rate was likely to fall below 6.5% before long, it was appropriate to replace the existing quantitative thresholds at this meeting," the minutes read.

"Almost all members judged that the new language should be qualitative in nature and should indicate that, in determining how long to maintain the current 0 to 0.25% target range for the federal funds rate, the Committee would assess progress, both realized and expected, toward its objectives of maximum employment and 2% inflation."

Leading Dow Jones Industrial Average performers included Merck & Company Inc (NYSE:MRK), up 3.77%, American Express Company (NYSE:AXP), up 2.57%, and Visa Inc (NYSE:V), up 2.32%.

The Dow Jones Industrial Average's worst performers included AT&T Inc (NYSE:T), down 1.01%, Verizon Communications Inc (NYSE:VZ), down 0.49%, and Wal-Mart Stores Inc (NYSE:WMT), down 0.27%.

European indices, meanwhile, finished higher.

After the close of European trade, the DJ Euro Stoxx 50 rose 0.10%, France's CAC 40 rose 0.40%, while Germany's DAX rose 0.16%. Meanwhile, in the U.K. the FTSE 100 rose 0.68%.

On Thursday, the U.S. Labor Department is to release its weekly report on initial jobless claims.

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This article appears in: Investing , Forex and Currencies

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