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Traders work on the floor of the New York Stock Exchange, Nov. 9, 2012. (Brendan McDermid/Reuters)

Traders work on the floor of the New York Stock Exchange, Nov. 9, 2012.

(Brendan McDermid/Reuters)

Market update: Stocks extend gains as Fed reveals latest stimulus Add to ...

North American stock markets extended earlier gains and were striking intraday highs after the U.S. Fed announced a fresh round of Treasury purchases to bolster the economy.

Just prior to 1 p.m. (ET), the S&P/TSX composite index was up 51 points, or 0.4 per cent, at 12,333 -- its high for the day. The S&P 500 was up 8 points, or 0.5 per cent, at 1,436; and the Dow Jones industrial average was up 51 points, or 0.3 per cent, at 13,300.

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The Canadian dollar was rallying on the latest Fed actions, last up about one-third of a cent for the day, at 1.0171 per U.S.

The Fed's commitment to monthly purchases of $45-billion in Treasuries, which is on top of the $40-billion per month in mortgage-back bonds it is buying, was widely expected. So was its decision to keep interest rates at an extremely low 0 per cent to 0.25 per cent.

But in a surprise move,  the Fed also adopted numerical thresholds for policy, a step that had not been expected until early next year. In particular, the Fed said it will likely keep official rates near zero for as long as unemployment remains above 6.5 per cent, inflation between one and two years ahead is projected to be no more than 2.5 per cent, and long-term inflation expectations remain contained.

The Fed also published updated forecasts, predicting the U.S. economy would grow between 2.3 per cent and 3 per cent this year, a slight downgrade from its previous estimate of 2.5 per to 3 per cent. The Fed predicted the unemployment rate would remain above 6.8 per cent through next year, and drop to 6 per cent to 6.6 per cent in 2015. Policy makers foresee no danger of inflation breaching their 2 per cent target through the next three years.

Any significant rally may have to wait until the "fiscal cliff" issue is resolved in the U.S.

Progress in those negotiations to head off the more than $600-billion in spending cuts and tax increases set to take hold at the start of 2013 still appear to be slow going. U.S. House of Representatives Speaker John Boehner said today that  “serious differences” remain with President Barack Obama in the budget talks.

 

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