Stocks give up gains after Fed(Investors don't like low interest rates?)

CnnMoney ^ | 11/4/2009 | Alexandra Twin

[Bobkk47]

NEW YORK (CNNMoney.com) -- Stocks ended mixed Wednesday, giving up bigger gains after the Federal Reserve kept interest rates unchanged and said it will keep them low for an extended period.

The Dow Jones industrial average (INDU) gained 30 points or 0.3%, according to early tallies. The Dow had gained as much as 156 points in the afternoon, but couldn't sustain those gains through the close.

The S&P 500 (SPX) gained 1 point, or 0.1%, and the Nasdaq composite (COMP) lost a few points.

Stocks rose through the early afternoon as investors welcomed a pair of labor market reports that signaled the pace of layoffs is slowing. But markets were choppy after the announcement, with the major indexes alternately cutting most of the the gains, or pushing toward bigger gains.

Oil prices spiked past $80 a barrel and gold prices flirted with all-time highs just close to $1,100 an ounce. The dollar slipped versus the euro and strengthened against the yen. Bond prices slipped, boosting the corresponding yields.

[Attention Surplus Disorder]

Gold spiking isn’t typically good for markets.

And the idea that economy is smokin’ along on 8 cylinders is belied by the idea that they’re keeping rates so low. It’s IMO a matter of “pay attention to what they do, not what they say.”

[Lonesome in Massachussets]

(Investors don’t like low interest rates?)

Inflation fears?

[BeckB]

If the economy was doing good the Fed would hike interest rates to fight inflation. They are leaving them low to try and spur the anemic economy. Good luck! What about tax cuts? That might work!

[agere_contra]

Labor market reports that signaled the pace of layoffs is slowing.

In related news: crash victims who have lost half their blood tend to bleed more slowly.

[UAConservative]

We have walked into Japan’s predicament and have found ourselves in a liquidity trap. This is why manipulating interest rates near zero and injecting money does not boost the economy. It just brings huge stagflation.

Info on liquidity trap:

http://en.wikipedia.org/wiki/Liquidity_trap

[April Lexington]

Increasing interest rates will have a negative effect on the federal deficit as new issue federal debt will have higher interest rates, demanding more cash to pay the debt service. Taxpayers will be on the hook for more money as the federal government pays interest instead of buying stuff to stimulate GDP (Y=C+I+G+NX). Tax dollars will flow to the Chinese and other debt holders rather than into public spending on infrastructure. If Obama/Congress won't raise taxes to cover the increased interest payments, the federal government will have to find new suckers to buy bonds at higher interest rates to pay interest on the outstanding debt. Thus the downdraft continues and accelerates. We are approaching the abyss!

[blam]

See here when the announcement was made.

[Pearls Before Swine]

Investors may not like negative real interest rates. (”Real” interest rate = nominal - inflation). But, who can believe the inflation indices published by a self interested government? That’s one reason why I don’t buy TIPS (Treasury Inflation Protected Securities).