Posted on: Wednesday, January 5, 2005
Fed's speculation on
By Michael J. Martinez
Associated Press
NEW YORK — New concerns about inflation expressed by the Federal Reserve drove stocks sharply lower yesterday, adding to a spate of profit-taking that, in the first two sessions of 2005, erased nearly a month of Wall Street's gains.
According to the minutes of the Federal Open Market Committee's Dec. 14 meeting, a number of Fed officials said a drop in productivity growth, the weakening dollar and high oil prices could all contribute to inflation, and they hinted that interest rates may have to rise more aggressively to strengthen the dollar and curb inflation.
The Fed had been projecting steady, measured hikes in rates; the benchmark federal funds rate stands at 2.25 percent.
The release of the minutes led to a sharp drop in stock prices and a jump in trading volume, exacerbating losses in a session in which investors sold small-cap stocks and riskier investments for a second straight day.
"The Fed's comments really turned a day of light profit-taking into a day of significant profit-taking," said Michael Sheldon, chief market strategist at Spencer Clarke LLC. "Clearly, the way the market started off the new year will make investors nervous, and that could feed on itself over the next few days and drive things even lower before it settles down."
The selling was intensified by climbing oil prices, with tight supplies of heating oil and evidence that Saudi Arabia is cutting back on production blamed for the increase. A barrel of light crude settled at $43.91, up $1.79, on the New York Mercantile Exchange.
Declining issues outnumbered advancers by about 11 to 3 on the New York Stock Exchange.
