Stocks edge higher as Wall Street awaits Fed decision

NEW YORK -- Stocks rose modestly in early trading Wednesday as Wall Street awaited the Federal Reserve’s decision on whether it will scale back its economic stimulus efforts now or next year.

The Dow Jones industrial average rose 52.10 points, or 0.3%, to 15,927.36.

The broader Standard & Poor’s 500 gained 3.31 points, or 0.2%, to 1,784.31. The technology-focused Nasdaq composite added 1.01 points, essentially flat at 4,024.69.

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Wall Street has been obsessed over how long the Fed would continue its easy money policies that have helped boost this year’s stock rally.

Many investors had earlier fretted over the possibility that the Fed would announce tapering Wednesday, but few seem to expect the Fed to act that soon.

“The fear was that the Fed would announce it today,” J.J. Kinahan, chief strategist at TD Ameritrade, said Wednesday morning. “The fear is dissipating.”

By buying $85 billion in bonds every month, the Fed has tried to lower borrowing costs for consumers and businesses as a way to stimulate economic growth.

With interest rates lower, investors have searched for higher returns in riskier assets like stocks. That has helped pushed up the Dow nearly 22% since Jan. 1.

The big question for the Fed has been whether the U.S. economy can stand on its own without its stimulus, known as quantitative easing.

The labor market -- one key factor in the Fed’s decision -- has improved somewhat, while inflation has remained stubbornly low. A recent budget deal in Congress may also lead Fed officials to believe fiscal policy won’t get in the way of growth, at least in the short term.

Nicholas Colas, chief market strategist at the brokerage ConvergEx Group, said the budget deal means the Fed could see less of a need to intervene.

“One of the reasons the market has had confidence the Federal Reserve was going to stay involved and continue quantitative easing was because of all the uncertainties created by all the arguments in Washington,” Colas said. “The Fed has been the only adult in the room for a long time in Washington.”

Market experts differed on how the Fed might read recent economic data.

“The data has been better -- I wouldn’t characterize it as strong,” Colas said.

Some expect the Fed may hold off on tapering for reasons not tied to the economy. Many on Wall Street are on vacation over the holidays, for example, and the Fed itself is on the verge of new leadership and turnover in key posts. Janet Yellen is poised to take over as Fed chair early next year after Ben S. Bernanke’s term ends.

“You’ve got a lot of vacancies,” said Russ Koesterich, global chief investment strategist at BlackRock Inc. “It’s a time of transition. Are you really going to make that big move with all of this going on?“

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