The Marketplace Report: Wall Street's Fed Swoon

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Alex Chadwick talks with Bob Moon of Marketplace about Wall Street's new optimism. With the Federal Reserve hinting it may end the recent trend of interest rate hikes used to slow inflation, the Dow Jones Industrial Average jumped 129 points — the biggest one-day gain since October 28, when minutes from the most recent Fed meeting were released.

ALEX CHADWICK, host:

Back now with DAY TO DAY. I'm Alex Chadwick.

It's a happy new year on Wall Street. The Dow industrials had their biggest one-day gain since the end of October. Joining us is "Marketplace's" Bob Moon.

Bob, we're seeing happy days on Wall Street.

BOB MOON reporting:

Well, indeed, we are. It's a Wall Street axiom, Alex, that was really borne out as the stock market headed toward the closing bell yesterday afternoon. Traders fear the unknown, so as trading kicked off yesterday, the market was drifting. Well, then the Federal Reserve released the minutes from the most recent session of monetary policy-makers, and those minutes revealed some of the behind-the-scenes thinking that has really been behind the central bank's credit-tightening moves. Some of the notes from that meeting strongly suggested the Fed may be nearly finished with its long string of interest rate increases. Specifically, traders were focusing on one key passage from the minutes, and I quote here, "Given the information now in hand, the number of additional firming steps required probably would not be large."

Now that's the strongest indication so far that the Fed is close to backing off its efforts to cool down economic growth and keep inflation in check. Some traders say what happened to the market then--a 129-point jump in the Dow--suggests that the market is primed to move higher this year if it can just get behind--or get past, I should say, the uncertainty of how many more interest rate hikes there will be.

CHADWICK: `The number of additional firming steps probably would not be large'?

MOON: Well, that suggests that they're trying to figure out just how many more interest rate hikes they're going to need to keep inflation in check. Let me give you another Wall Street axiom here: As January goes, so goes the rest of the year.

CHADWICK: Oh!

MOON: There's nothing definitive in that; it's just a hunch that a lot of traders have about January and, in particular, this opening week of the new year. So the way the market's going right now, that could be a harbinger of things to come.

CHADWICK: So traders--they heard what they wanted to hear yesterday from the Federal Reserve. What about, well, February? It's winter. Maybe there's something out there that's a little more souring than what you've given us so far.

MOON: Well, time will tell, as they say, Alex. There are some mixed economic signals that really are tempering some of the optimism on Wall Street. There's still some fear that the Fed may already have tightened credit too much. There's a report from the Institute for Supply Management that shows US manufacturing's growth rate slowed in December from November. On the other hand, the Commerce Department reported today that factories posted their biggest gain in three months during November. So there are mixed signals there.

Today in the "Marketplace" newsroom, we're taking a look at some bold, new plans in Las Vegas.

CHADWICK: Well, a good place to look. Bob Moon, thank you.

Bob Moon of public radio's daily business show "Marketplace," produced by American Public Media.

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