Stocks fall as Fed renews support with bond-buying, holding interest rate near zero
NEW YORK — The stock market retreated from all-time highs on Wednesday when the Federal Reserve said the economy still needs help from its stimulus program.
In its latest policy statement, the nation's central bank said it will continue buying $85 billion in bonds every month and keep its benchmark short-term interest rate near zero. The bond purchases are designed to keep borrowing costs low to encourage hiring and investment.
The Fed said it would “await more evidence” that the economy was improving before starting to pull back its stimulus program.
The Fed's announcement was mostly expected by investors. Since the central bank's last meeting in September, the economy suffered a blow because of the 16-day partial shutdown of the federal government.
As a result, investors thought it would be highly unlikely the Fed would make any changes to its stimulus program until there is more evidence that the economy could grow without the central bank's help.
The soonest the Fed could revisit its bond-buying program will be at its mid-December meeting. However, Ben Bernanke's term as Fed chairman ends in February, and his successor, Janet Yellen, has yet to be confirmed by the Senate. It is considered unlikely that Bernanke would take on such a large project like pulling back on the bond-buying program when he has only months left in the position.
“We're looking at March of next year at the earliest” before the Fed will start to pull back, said Dean Junkans, chief investment officer for Wells Fargo Private Bank.
On Wednesday, the Dow Jones industrial average lost 61.59 points, or 0.4 percent, to close at 15,618.76. The Standard & Poor's 500 index fell 8.64 points, or 0.5 percent, to 1,763.31. The Dow and S&P 500 closed at record highs on Tuesday.
The Nasdaq composite fell 21.72 points, or 0.6 percent, to 3,930.62.
Bond prices also fell with the Fed's announcement. The yield on the benchmark U.S. 10-year Treasury note rose to 2.54 percent from 2.50 percent the day before.
Stocks of home construction companies fell as the Fed said in its policy statement that “the recovery in the housing sector slowed somewhat in recent months.” Last month, the Fed said housing “has been strengthening.”
KB Home fell 47 cents, or 3 percent, to $17.49. Luxury homebuilder Toll Brothers fell 56 cents, or 2 percent, to $33.56 and PulteGroup fell 21 cents, or 1 percent, to $18.00.
Despite the decline on Wednesday, October has been a big month for the stock market. With just one day of trading left, the S&P 500 is up 4.9 percent, putting the index on track for its best month since July.