US stocks up 3% as Fed moves to cut interest rates

US stocks up 3% as Fed moves to cut interest rates

US stocks soared as Federal Reserve Chairman Ben Bernanke said his agency would cut interest rate rates this week, while global markets rallied.

“The Fed has said it would cut rates by a quarter point, which would help stabilize the economy, and that it would probably increase the pace of rate hikes as well,” Mr Bernanke told reporters in the United States.

The US benchmark S&P 500 index rose 3.4 per cent to 2,096.50.

Shares of gold-backed Morgan Stanley rose $1.36, or 2.9 per cent, to $1,894.50 an ounce.

Gold prices had fallen sharply in recent weeks following a rally in April.

Inflation in the US is expected to remain above the Fed’s 2 per cent target for the foreseeable future, although the Federal Reserve said last week that the inflation rate could slow further in the coming months.

“While the Fed may move to reduce rates next week, the central bank has not yet signaled that it will cut rates,” HSBC chief economist Richard Truscott said.

“While we expect the rate cuts to be modest and to have a moderate impact on inflation, we remain cautious about the impact on the economic outlook.”

Gold prices have surged as the US economy continues to struggle after the collapse of the housing market and the global financial crisis.

After the Federal Open Market Committee cut its key interest rate by a third last week, it sent a signal that it could raise rates again.

The Fed’s interest rate decision has become a political flashpoint between the White House and Republicans in Congress. 

Mr Bernanke, who was appointed by President George W Bush in December 2010, said he had taken the decision because he believed the economy was in need of additional stimulus.

“I have said in the past that we are at a time when we need to take a step back and look at how we can create more jobs and boost the economy,” he said in a speech on Tuesday.

He said he expected that interest rates would gradually move lower as inflation rose, and eventually return to normal.

The S&p 500 rose 2.2 per cent after rising 0.9 percent in early morning trading.

On Monday, US stock indexes rose sharply as the Federal Communications Commission voted to repeal its ban on “unfair and deceptive” price-gouging in the broadband sector.

The Federal Communications Committee on Monday approved a proposal to allow broadband providers to charge fees for services such as video streaming and social media sharing. 

Shares of Comcast Corp and Time Warner Inc rose 3 per cent and 5.9 and 5 per cent respectively.

European stocks also rose sharply, with the FTSE 100 index up 6.1 per cent.

The euro was up 0.5 per cent against the dollar.

The US economy added 151,000 jobs in March, the highest rate of growth since September 2008.

The number of Americans with jobs dropped by 6.9 million in March and by 4.9m in April, according to the Bureau of Labor Statistics.

Economists said that, despite the strong employment growth, the number of people employed fell below the Fed target of 175 million by the end of this year.

With Reuters

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