Wall Street soared and the dollar tumbled yesterday after the release of Federal Reserve minutes suggesting the majority of central bank policymakers believed the Fed's near two-year tightening of interest rates was close to an end.
Last month the Federal Open Market Committee raised the overnight fed funds target rate to 4.75 per cent - the 15th consecutive 25-basis-point increase since the key short-term rate moved off a 45-year low in the summer of 2004 - and a further such increase is expected when the FOMC next meets on 10 May.
But, the markets now believe, that may be it. According to the minutes of the 27/28 March meeting, "most members thought the end of the tightening process was likely to be near". It added too that "some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy".
As always, the Fed kept its options open. But the minutes, from the first FOMC gathering chaired by the new Fed chairman Ben Bernanke, signal that while the central bank will make its decisions on the basis of the latest economic data, the feeling was that inflation was not a threat.
Rising energy costs were pushing other commodity prices higher. But the signs were, the minutes report, "that underlying inflation was not in the process of moving higher".
That conclusion and its implications sent the Dow soaring, to close 195 points, or 1.76 per cent, higher at 11,268.77, while the hi-tech-laden Nasdaq composite index rose 44.98 to end at 2,356.14. Bond prices rose too, but the dollar lost a cent or more of its value to trade at $1.2310 against the euro and at $1.7793 against the pound in late trading in New York.
"I think it's important to recognise that inflation is where the Fed wants [it] to be," Dana Johnson, an economist at Comerica in Ann Arbor, Michigan, said. "They don't want to overshoot. I think they will pause real soon."