With investors, traders, economists and, well, just about everyone getting what they wanted from the U.S. Federal Reserve this afternoon, it is perhaps little wonder that stocks are rallying. Within 15 minutes of the Fed's decision to cut rates by 50 basis points, the Dow Jones industrial average and the S&P 500 both shrugged off earlier losses during the day and rallied 1.1 per cent. Exxon Mobil Corp., General Electric Co. and Bank of America Corp. were among the biggest winners. Canada's S&P/TSX composite index also rebounded, rising 0.4 per cent, driven higher by Suncor Energy Inc., Research In Motion Ltd., EnCana Corp. and Canadian Natural Resources Ltd. The Canadian dollar spiked more than half a cent on the Fed's move, rising to above $1.01 (U.S.), as did the euro. Ian Shepherdson, chief U.S. economist at High Frequency Economics noted that the Fed's accompanying statement did not say that its new forecasts are far worse than they were in October, but he expects the gloomier edge will come out in the Fed's minutes when they are released. "The statement repeats that there is downside risk to growth but drops 'appreciable' and says in addition that the policy action so far 'should promote moderate growth over time.' They are still ready to 'act in a timely manner as needed' but the hint here is that they think further easing will be much slower - markets permitting," Mr. Shepherdson said in a note to clients. Bond investors also ran with the lower rate today, sending the yield on the benchmark 10-year U.S. Treasury bond above 3.7 per cent, a move that some observers believe is a sign that the bond market is breathing sighs of relief. Avery Shenfeld, senior economist at CIBC, said that the reaction steepens the U.S. yield curve, where short-term bond yields are now lower than longer-term bond yields - a welcome shift from the inverted yield curve that had been haunting market watchers for much of the past year. "Taking a bigger picture of the economy as a whole, a steeper yield curve will be a plus," Mr. Shenfeld said. "The Fed is doing this in part to shore up a shaky financial system, and a steeper yield curve is supportive for profits for the banking sector. In that sense, the market's reaction is quite a plus."
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