NEW YORK — American consumers got a rare double dose of good news Tuesday, triggering a broad stock market rally that sent the Dow Jones industrial average up more than 330 points.
The Federal Reserve kept interest rates steady, which at the least should help the credit crunch from getting worse.
And crude oil prices dropped again, closing below $120 a barrel for the first time since early May. That should help consumers buy more than just gasoline, boosting retailers and the broader economy just as the government's economic-stimulus package nears an end.
"Even if [oil prices] stay here, that's likely a significant stimulus to the economy, particularly to consumers," said Alexander Paris, president of Barrington Research Associates, a money management and economic forecasting firm in Chicago.
Consumer stocks led the market rally. Shares of Macy's Inc. jumped almost 9%, while Sears Holdings Corp. posted a gain of 10.6%. Whirlpool Corp. was up 7.4%.
The rally gained momentum after the Fed held its target federal funds rate at 2%, where it has rested since April 30, and raised expectations that the central bank might not boost rates until early next year.
In a statement accompanying its decision, the Fed struck a delicate balance between addressing the softening economy and promising vigilance on inflation.
"Labor markets have softened further and financial markets remain under considerable stress," the statement said. "Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters."
The Fed said it expected rising prices "to moderate later this year and next year, but the inflation outlook remains highly uncertain."
The statement was similar in tone to the one after its last meeting in June, but seemed to play up the economic risks. The June statement said "downside risks" to the economy "appear to have diminished somewhat." That sentiment was excluded this time.
Analysts took it as a sign that the Fed, while it doesn't have much room to cut rates, doesn't want to risk aggravating the economy and deepening the credit crunch by raising them to tamp down pricing pressures, analysts said.
"This is not an economy hungering for lower interest rates," said Ken Mayland, president of Pepper Pike, Ohio-based ClearView Economics. "The Fed doesn't need to lower interest rates. The Fed needs to act to restore confidence and liquidity in all the credit markets."
