Stocks slipped Tuesday (AUG 8 2006) after the Federal Reserve (FED) opted not to raise interest rates for the first time in two years. The pause in rate rises was expected but the door was also left open for further hikes in the months ahead. The fed funds rate affects rates on CREDIT CARDS, AUTO LOANS and HOME EQUITY lines of credit.
Stocks had rallied right after the 2:15 p.m. ET release of the decision and statement, but soon turned lower as investors digested the implications of the decision and the central bank's statement.
The Fed voted to keep a key short-term bank lending rate unchanged at 5.25 percent, reflecting the economic slowdown. The central bank had raised rates 17 straight times starting in June 2004.
However, investors probably wouldn't have reacted well even if the central bankers had stated that rate hikes were done, as it might have raised worries that they were behind the curve on inflation, said Wan-Chong Kung, senior fixed-income portfolio manager at First American Funds.
WHAT GOT AFFECTED???
Economically sensitive stocks were hit the hardest, including home builders, realtors, banks and commodities.
Brocade Communications, a computer data storage maker, said it would buy rival McData for $713 million in stock, a nearly 50 percent premium on the company's Monday closing price.
In currency trading, the dollar was modestly lower versus the euro and the yen.
U.S. light crude oil for September delivery fell 67 cents to settle at $76.31 a barrel on the New York Mercantile Exchange, after fluctuating throughout the morning.
Oil prices surged 3 percent Monday after BP ( Click Here for more info) began shutting down the biggest oilfield in the United States due to a corroded pipeline. That sent stocks lower as investors worried about rising inflation, particularly with the Fed seen as near the end of its rate-hiking campaign.
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