Federal Reserve chair Yellen will keep interest rates low. The Dow Jones industrial average and Standard & Poor’s 500 index both closed at 2016 highs Tuesday after Federal Yellen pulled stocks out of an early slump when she said the central bank will move cautiously on interest rates hikes because of risks of a weak global economy and low inflation.
“Given the risks to the outlook, I consider it appropriate for the (Fed’s policymaking committee) to proceed cautiously in adjusting policy,” Yellen said in the text of a speech she delivered to the Economic Club of New York.
Yellen’s speech came at a key time for markets, as the 12% rally for the Dow Jones industrial average since the low on Feb. 11 has lost some momentum. Her comments today on monetary policy reinforced the Fed’s decision two weeks ago that dialed back its rate hike plans this year to two rate hikes, down from four. Investors were nervous prior to the speech after comments last week from one Fed member suggested that the next rate hike could come as early as April.
The Dow, which had its five-week winning streak snapped last week, had been down about 35 points prior to the speech and then quickly moved into positive territory. At the close, the Dow was up about 98 points, or 0.6%, to 17,633 based on preliminary numbers. The S&P 500 index was up or 0.9%, as it moved back into into positive territory for the year, topping its 2015 close of 2043.94. The Nasdaq composite index gained 1.7%.
Tuesday’s finish was the highest this year for both the Dow and S&P and left each in the black for 2016, with the Dow up 1.5% and the S&P up 0.5%. The Nasdaq still has some work to do to wipe out its 2016 loss, and at Tuesday’s close was down 3.2% for the year.
