- The Washington Times - Thursday, March 19, 2009

NEW YORK | The Federal Reserve is keeping Wall Street’s big rally alive - and giving the Treasury market a boost as well.

The Fed said Wednesday it will pump about $1 trillion into the economy, including the purchase of up to $300 billion of long-term Treasury securities over the next six months, as it works to revive the housing market and halt a punishing recession.

The decision sent both government bonds and stocks soaring as investors expected the move to drive down borrowing costs for everything from mortgages to credit cards. The Dow Jones Industrial Average reversed early losses to end up 90 points as the yield of the benchmark 10-year Treasury note plunged.

The move, analysts said, is likely to produce an immediate drop in mortgage rates, of 0.25 to 0.5 percent percentage point, as the Fed made clear that it would be able to purchase the majority of new mortgage-backed securities for at least the rest of the year - and possibly longer.

Homebuilder and financial company stocks shot higher on the news, which came a day after the Commerce Department reported better-than-expected housing start numbers for February.

The government also said consumer prices rose in February by the largest amount in seven months as gasoline prices surged again and clothing costs jumped the most in nearly two decades.

But the increase appeared to ease many economists’ concerns about dangerous price movements in either direction. The recession is expected to dampen any inflation pressures for at least the rest of this year, while the slight uptick in prices over the past two months also has made the possibility of deflation more remote.

The Labor Department reported Wednesday that consumer inflation rose 0.4 percent in February, the biggest one-month jump since a 0.7 percent rise in July. Two-thirds of last month’s increase, which was slightly more than analysts expected, reflected a big jump in gasoline pump prices.

Separately, the deficit in the broadest measure of U.S. trade fell sharply in the final three months of last year as oil prices dropped and the recession reduced U.S. consumers’ demand for overseas goods. Economists expect the improvement in the U.S. current account to continue this year, but mostly because of rapid falls in imports.

Gas prices surged 8.3 percent last month after a 6 percent rise in January. Both gains came after several months of huge declines in prices at the pump.

Total energy costs rose 3.3 percent in February, almost double the 1.7 percent January rise. But energy prices are still down 18.5 percent from a year ago. Home heating oil and natural gas prices both fell in February.

Airline fares fell 2.6 percent last month, the biggest drop since November, but new car prices rose 0.8 percent.

The Dow rose 90.88, or 1.2 percent, to 7,486.58.

Broader stock indicators jumped, too. The Standard & Poor’s 500 Index added 16.23, or 2.1 percent, to 794.35, and the Nasdaq Composite Index rose 29.11, or 2 percent, to 1,491.22.

Stocks have risen for six out of the past seven days. Since the market rally began last week, the Dow has jumped 14.4 percent, and the S&P; 500 has soared 17.4 percent.

The Russell 2000 Index of smaller companies jumped 14.04, or 3.5 percent, to 417.63.

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