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3 words that drove U.S. stocks to record highs: ‘Await more evidence’ Add to ...

These are stories Report on Business is following Wednesday, Sept. 18, 2013.

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Fed holds firm
The Federal Reserve chose today to do absolutely nothing, a decision that buoyed investors and drove U.S. stock prices to record highs.

Everyone had believed that the U.S. central bank would announce plans to cut back on its massive asset-buying program, known as quantitative easing or QE, but chairman Ben Bernanke held the line instead, The Globe and Mail’s Kevin Carmichael reports.

The Fed has been buying $85-billion (U.S.) a month in assets to help bolster the economy and ease unemployment, still stubbornly high five years after the onset of the financial crisis.

Investors, expecting the central bank to pare those monthly purchases to about $75-billion, have been on edge, not wanting the Fed to go too far too fast lest such a move impair the recovery and hurt the markets.

They got more than they bargained for when the Federal Open Market Committee, the central bank’s policy-making group, chose not to act, putting off a decision to a later day and driving up the S&P 500, the Dow Jones industrial average and Toronto’s S&P/TSX composite.

“Taking into account the extent of federal fiscal retrenchment, the committee sees the improvement in economic activity and labour market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy,” the central bank said.

“However, the committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.”

The S&P 500 gained 1.2 per cent and the Dow almost 1 per cent, both hitting fresh highs, while the Toronto market climbed 0.8 per cent.

"The market got a huge sugar rush," said Kit Juckes, the chief of foreign exchange at Société Générale.

"On the downside we are going to have to do it all over again soon. The sooner taper starts the sooner the world can move on. But, for now, bad for the dollar, good for risk."

Fed policy makers also slightly scaled back their economic outlook for the year, though they said some indicators of the jobs market had improved.

“Against a backdrop of a gradually declining unemployment rate and limited inflation pressures, we expect the Fed to start to taper its monthly bond purchase program with an eye to ending the program in the spring of 2014,” said assistant chief economist Dawn Desjardins of Royal Bank of Canada.

“The Fed funds rate target will, however, likely remain in the current range of 0.00 per cent to 0.25 per cent until 2015, at which time both the unemployment and inflation rates will closer to the thresholds set out by policy makers.”

Canada on the rebound, Poloz says
Bank of Canada Governor Stephen Poloz beat his U.S. counterpart to the podium today, telling a Vancouver audience that Canada is on its "way home" to more natural economic growth as central banks prepare to pull back from nearly six years of remarkably low interest rates.

Making just his second public speech since taking over from Mark Carney in June, Mr. Poloz said the key pieces of a more normal and self-sustaining economy are falling into place, The Globe and Mail's Barrie McKenna reports.

“We are now close to the tipping point from improving confidence into expanding capacity,” Mr. Poloz said in notes prepared for a speech to members of the Vancouver Board of Trade.

Most economists don’t expect the Bank of Canada to start raising its key overnight rate -- fixed at 1 per cent since September 2010 -- until late 2014 or even 2015.

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