US stocks end up slightly after Fed keeps rates unchanged

Source: Agencies  |   2008-6-26  |     ONLINE EDITION

WALL Street ended an erratic day with a modest gain after the Federal Reserve left interest rates unchanged and issued a mixed assessment of the US economy.

The Fed pointed to a few positive signs in the economy, including "some firming in household spending." But it also said persistently rising energy prices are likely to limit growth, and not just quicken inflation, which also remains a major concern for the central bank.

The central bank said after a two-day meeting it is keeping the benchmark federal funds rate at 2 percent. The hold was expected, after several speeches by Fed officials suggesting that inflation is becoming a bigger worry for policy makers. It was the first time in 10 months that the central bank did not cut rates, last summer, the key rate was above 5 percent.

The Fed is at a critical turning point, said Quincy Krosby, chief investment strategist for The Hartford insurance company. There are still big credit troubles at the nation's major banks, the job market has been deteriorating for several months, and home prices are still tumbling; to raise rates prematurely could cause these trends to worsen further.

"The goal of the central banks is to get us through this as smoothly as possible, but this is not a science; it is an art form," Krosby said. "This is as delicate as it gets."

The Dow Jones industrial average closed up 4.40, or 0.04 percent, at 11,811.83, after rising more than 100 points shortly after the Fed announcement.

Broader stock indicators managed to log stronger gains. The Standard & Poor's 500 index rose 7.68, or 0.58 percent, to 1,321.97, and the Nasdaq composite index rose 32.98, or 1.39 percent, to 2,401.26.

Trading is often uneven after a rate decision as the market parses the central bank's statement.