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U.S. Stocks Maintain Gains as Fed Sees Little Risk on Inflation

May 21 (Bloomberg) -- U.S. stocks maintained gains as Federal Reserve policy makers said continued stimulus to push unemployment lower doesn’t risk sparking an undesirable jump in the inflation rate.

The Standard & Poor’s 500 Index added 0.6 percent to 1,884.66 at 2:03 p.m. in New York.

With inflation expected to remain well below its 2 percent goal, the Federal Open Market Committee doesn’t “face a trade- off between its employment and inflation objectives, and an expansion of aggregate demand would result in further progress relative to both objectives,” according to minutes of their April 29-30 meeting released today in Washington.

Fed officials also discussed the need to improve their guidance on the likely path of interest rates.

Policy makers said last month the economy is showing signs of picking up and the job market is improving. The central bank pared its monthly asset buying to $45 billion in April, its fourth straight $10 billion cut, and said further reductions in measured steps are likely.

The Fed reiterated at the time that it will keep the key rate target near zero for a “considerable time” once it concludes the bond-purchase program it has also used to fuel growth.

Fed Chair Janet Yellen said last week the U.S. economy has further to go to achieve full health and predicted small businesses will play a vital role in the recovery.

Three rounds of bond purchases by the Fed have helped send the S&P 500 up as much as 180 percent from a 12-year low in 2009. It is trading at 16 times the projected earnings of its members, greater than a five-year average of 14.3 times, according to data compiled by Bloomberg.

About 75 percent of S&P 500 companies that have posted results this season have beaten analysts’ estimates for profit, while 53 percent have exceeded sales projections, data compiled by Bloomberg show.

The S&P 500 fell 0.7 percent yesterday after retailers reported lower-than-estimated earnings and small-cap shares slumped. The benchmark index closed at an all-time high of 1,897.45 on May 13 before a selloff in small-cap stocks spread to the broader market. The Russell 2000 tumbled 1.5 percent yesterday, and is down more than 9 percent from a record set in March.

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