WASHINGTON — U.S. Federal Reserve officials on Tuesday slashed official interest rates to an historic low range to combat a deepening recession and signaled they will keep rates “exceptionally low” for some time amid rapidly waning price pressures.

Officials also signaled a new phase for policy in which lending programs financed by the Fed’s ballooning balance sheet, a process known as quantitative easing, replace the federal funds rate as the Fed’s primary policy tool.

The Federal Open Market Committee voted unanimously to reduce the target fed funds rate for interbank lending from 1% to a range of zero to 0.25%, the lowest since the Fed started publishing the funds target in 1990. The market-determined effective fed funds rate already has already hit record lows in recent weeks.

Economists had expected a smaller cut of just 0.5 percentage point, and hadn’t envisioned the Fed setting a range.

“The Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time,” the Fed said, adding it will “employ all available tools” to promote growth and maintain price stability.

The Fed has used a variety of operating targets through the decades, including the discount rate and monetary aggregates.

The Fed also lowered the discount rate paid by commercial and investment banks for Fed loans by 0.75 percentage point to 0.5%.

In a statement, the FOMC said its focus “will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level.”

Ben Bernanke tipped the shift toward quantitative easing — in which cash is essentially created and used to finance lending facilities — earlier this month. He said that while the Fed’s ability to use interest rates to support the economy “is obviously limited” with rates so low, the “second arrow in the Federal Reserve’s quiver — the provision of liquidity — remains effective.”

Even President-elect Barack Obama on Tuesday said “we are running out of the traditional ammunition that’s used in a recession, which is to lower interest rates, they’re getting to be about as low as they can go.”

The Fed already has nontraditional initiatives in place to support lending to commercial and investment banks, provide U.S. dollar funding overseas and stabilize commercial paper and money market mutual funds. The Fed recently started purchasing agency debt and has announced plans to purchase hundreds of billions of dollars of agency-backed mortgage backed securities and consumer-linked asset backed securities.

In Tuesday’s statement, the Fed also said it is “evaluating the potential benefits of purchasing longer-term Treasury securities.”

When loans to Bear Stearns and American International Group are included, the Fed’s balance sheet now tops $2.2 trillion, more than double where it was when Lehman Brothers collapsed in mid September.

Meanwhile, the drumbeat of economic news worsened considerably between the late October and December FOMC meetings, highlighting the need for more stimulus. Consumer spending got off to a horrible start in the fourth quarter, and the economy lost more than 500,000 jobs in November alone, a total that could be matched or exceeded this month.

On Dec. 1 the National Bureau of Economic Research, the semi-official arbiter of recession, declared that the U.S. has been in a recession since last December. And it appears to be getting worse. Wall Street economists expect U.S. gross domestic product to plunge as much as 6% at an annual rate or even more this quarter. Some are penciling in another steep drop for the first quarter of 2009.

“The outlook for economic activity has weakened further,” the Fed said, noting weak labor markets and declining consumer spending, production and investment.

That weakness, coupled with a steep declines in energy prices, has not only brought inflation rates down sharply but also fanned some fears of outright deflation — which is a sustained, economy-wide decline in prices that cripples consumer and business spending. In its worst form, deflation is associated with Japan’s deep recession earlier this decade as well as the Great Depression.

According to November consumer price data released Tuesday, annual U.S. inflation is now running just 1.1%, matching its lowest rate since 1965. If December data come in soft as expected, the annual rate could approach zero.

“Inflationary pressures have diminished appreciably,” the Fed said, citing lower energy prices and the weak economy.

Still, Fed officials didn’t go as far as they did in 2003, when they referred in policy statements to the risk of an “unwelcome fall” in inflation.

Officials have good reason to avoid such language for now. Outside of energy and energy-dependent sectors, prices are still rising albeit at a slower pace then they were a few months ago.

And the Fed’s deflation fears in 2003 and 2004 appear in hindsight to have been overblown and may even have contributed to ultra-low interest rates that fueled the housing bubble.

By Brian Blackstone andMaya Jackson Randall
Of DOW JONES NEWSWIRES

WASHINGTON — U.S. Federal Reserve Chairman Ben Bernanke on Monday signaled that officials will hold nothing back in their support of financial markets and the economy, calling further interest rate cuts from already low levels “certainly feasible.”

In prepared remarks to an economic conference in Texas, Bernanke also said the Fed’s powers don’t end with the federal funds rate, and its ability to inject liquidity into markets through its balance sheet “remains effective.”

While officials will at some point need to bring short-term interest rates and liquidity back to more sustainable levels, “that is an issue for the future,” Bernanke said in the text of his remarks to the conference in Austin, Texas.

“For now, the goal of policy must be to support financial markets and the economy,” Bernanke said.

Among the Fed’s options, Bernanke said, are direct purchases of Treasurys and securities issued by government-sponsored enterprises “in substantial quantities” to affect yields, “thus helping to spur aggregate demand.”

He cited the Fed’s announcement last week that it will buy up to $600 billion in GSE debt and GSE-backed mortgage securities and called it “encouraging” that the announcement of that measure has brought mortgage rates down.

The Fed can also channel liquidity to certain segments of the financial markets, Bernanke said, citing the Fed’s recent measures to support the commercial paper market.

Bernanke said the U.S. economy “remains under considerable stress” and that after contracting 0.5% at an annual rate in the third quarter, “economic activity appears to have downshifted” after September.

Reflecting that assessment, the Institute for Supply Management’s November manufacturing index, released Monday, fell to its lowest level since 1982. Meanwhile, construction spending posted a steeper-than-expected drop in October, according to government figures. The November employment report, due for release Friday, is expected to show a plunge in nonfarm payrolls in excess of 300,000 with a further increase in the unemployment rate.

Indeed, Bernanke said weekly jobless claims figures “suggest that labor market conditions worsened further in November.” And with labor and credit conditions worsening, consumer spending is “on a pace to post another sharp decline in the fourth quarter,” he said.

The National Bureau of Economic Research, an academic group that determines when recessions occur based on a series of indicators, on Monday officially declared that the U.S. is in fact in a recession that began last December.

To prevent a deeper and prolonged recession, Fed officials are expected to lower interest rates at their Dec. 15-16 policy meeting, a view supported by Bernanke’s remarks Monday.

The target federal funds rate already sits at just 1%, matching lows last seen in 2003 and 2004. Further cuts would put the funds rate at levels not seen in a half-century.

Yet, even if the fed funds rate approaches zero — as a growing chorus of Wall Street economists expect — the Fed still has considerable sway over markets and the economy through its balance sheet.

“Although conventional interest rate policy is constrained by the fact that nominal interest rates cannot fall below zero, the second arrow in the Federal Reserve’s quiver — the provision of liquidity — remains effective,” Bernanke said.

That firepower was evidenced last week by the Fed’s decision to provide a loan backstop for the government’s bailout of Citigroup Inc. (C) and purchase GSE and GSE-backed mortgage securities.

Bernanke pledged that the Fed and other financial market regulators “will carefully monitor the conditions of all key financial institutions and stand ready to act as needed to preserve their viability in this difficult financial environment.”

However, he cautioned that government officials will have to at some point make dealing with the too-big-to-fail issue “a top priority.”

Bernanke was upbeat on the outlook for inflation, saying that with commodity prices down “dramatically,” inflation “appears set to decline significantly over the next year toward levels consistent with price stability.”

By Brian Blackstone
Of DOW JONES NEWSWIRES

WASHINGTON — Given new expectations that the U.S. economy could contract for as much as a year, Federal Reserve officials stand ready to slash interest rates to levels not seen in half a century, minutes of their most recent policy meeting show.

Meanwhile, officials suggested that the economy could be in for a rather lengthy recession and sharplydowngraded their economic forecasts. The minutes, which were released Wednesday with the customary three-week lag, show that officials generally expect the economy to contract in the second half of 2008 and the first half of 2009. And some officials expect that the economic weakness “could persist for some time.”

Some officials voiced concern that future cuts might do little to put the ailing economy on a healthier path, according to the minutes. And with the target federal funds rate already at 1%, some officials pointed out that the Fed has “limited room” to lower further and should therefore move slowly. Still, others said more aggressive easing could help reduce borrowing costs as well as the odds of a deflationary outcome.

Either way, the Fed has made it clear that it is “unequivocally biased” to further rate cuts, wrote UniCredit Markets and Investment Banking economist Harm Bandholz in a research note.

“The minutes show that not even this historically low level has to be the end of the Fed’s easing cycle,” said Bandholz, adding that he expects the Fed to cut its target rate another 50 basis points at officials’ Dec. 16 meeting.

In their Oct. 28-29 meeting, officials said that “unfolding economic developments” could require the Federal Open Market Committee “to further lower its target for the federal funds rate in the future and to review the adequacy of its liquidity facilities.”

Fed officials said they anticipate that economic data would show “significant weakness in economic activity” and that additional policy easing could well be necessary, according to the meeting minutes.

Meanwhile, they said they expect inflation to diminish in coming quarters.

“In any event, the committee agreed that it would take whatever steps were necessary to support the recovery of the economy,” the minutes said.

Overall, officials found that risks to the economy had greatly escalated and the credit crisis had morphed into an “international phenomenon,” leaving them little choice but to cut interest rates to four-year lows.

As the credit crisis worsened last month, the FOMC voted unanimously Oct. 29 to lower the target federal-funds rate at which banks lend to each other by 0.5 percentage point to 1%, its lowest level since the period between June 2003 and June 2004. The decision came in wake of Lehman Brothers Holdings Inc.’s (LEHMQ) September collapse, the near-failure of insurer American International Group Inc. (AIG) and new concerns about the conditions of other financial firms.

The Fed officials agreed that “significant easing in policy was warranted at this meeting in view of the marked deterioration in the economic outlook and anticipated reduction in inflation pressures,” the minutes said.

They also noted that the credit crisis expanded globally since their September policy meeting, at which they held rates steady.

“The strains from the banking and credit crisis intensified and took on a more global aspect over the intermeeting period,” the minutes said. “This development and the related erosion of the economic outlook and reduction in inflationary pressures led many central banks to reduce their policy rates, including in the internationally coordinated action announced on Oct. 8.” That day, Fed officials agreed to an unprecedented joint rate cut with other major central banks including the European Central Bank and Bank of England.

Meanwhile, the Fed downgraded its 2008 forecasts for gross domestic product and the unemployment rate, according to a quarterly forecast the Fed released Wednesday.

The central tendency of officials’ forecast is for gross domestic product growth this year to stand between 0.0% and 0.3%, which is lower than its June projection of a 1.0% to 1.6% range.

Meanwhile, they slashed their GDP growth projection for 2009 to a range of -0.2% to 1.1%. In June, they had seen a 2.0% to 2.8% range for 2009.

Officials also raised their forecasts for the unemployment rate. They now see the unemployment rate between 6.3% and 6.5% in 2008, up from the previous forecast of 5.5% to 5.7%, the Fed said.

Amid a deteriorating economy, the unemployment rate had already surpassed the Fed’s previous forecast. Earlier this month, the Labor Department reported that the unemployment rate in October soared 0.4 percentage point to 6.5%, the highest level since March 1994.

By Maya Jackson Randall
Of DOW JONES NEWSWIRES

WASHINGTON — The Federal Reserve on Wednesday slashed interest rates to four-year lows, capping a dramatic policy turn in October as the U.S. confronts a severe financial crisis and almost-certain recession.

Fed officials even left the door open to additional rate cuts to levels not seen in a half-century, putting rates on a once-unthinkable path towards zero.

The Federal Open Market Committee voted unanimously to lower the target federal funds rate at which banks lend to each other by 0.5 percentage point to 1%, its lowest since between June 2003 and June 2004. That outcome was universally expected by Wall Street economists in a Dow Jones Newswires survey.

The Fed also reduced the discount rate charged for direct loans to banks by 0.5 percentage point to 1.25%, responding to requests from Fed district banks in Boston, New York, Cleveland and San Francisco.

“The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures,” the FOMC said in a bleak assessment of the economy, while the financial crisis “is likely to exert additional restraint on spending.” Officials also alluded to “weakened” industrial production in recent months and “damping” prospects for U.S. exports.

Though the fed funds rate was 1% as recently as 2004, few if any on Wall Street had thought officials would revisit those levels again.

After all, the 2001 to 2003 easing campaign was seen by some, in hindsight, as an overreaction to the mild 2001 recession and over-hyped deflation fears. Those cuts and the slow pace of tightening thereafter were criticized as the root cause of the ensuing U.S. housing bubble, the collapse of which is at the heart of the current economic storm.

But this time is different. Far from a mild downturn, the U.S. economy is poised to contract sharply. Economists expect third quarter gross domestic product figures, due for release Thursday, to show a 0.5% contraction, at an annual rate. The forecasting firm Macroeconomic Advisers expects an accelerated decline of 2.8% in the current quarter followed by another GDP dip in early 2009.

The Fed “can go below 1%”on fed funds,said Brian Bethune, economist at IHS Global Insight. “They can go to 0.5% and they can even go to zero if they have to,” he added.

“We’re in the eye of the storm so they’ve basically got to use all of the ammunition they have to turn the situation around,” Bethune said.

Meanwhile, the unemployment rate is expected to climb well above 7% in coming months from its current level of 6.1%. And inflation rates, though still quite elevated on an annual basis, should come down quickly in response to falling oil and gasoline prices.

“In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability,” the Fed said. Wednesday’s statement made no reference to inflation risks as previous ones had.

As recently as the FOMC’s last scheduled meeting, on Sept. 16, officials had warned that inflation remained a “significant” concern. But as the credit crunch claimed more victims and showed signs of spilling over to consumer and business spending, Fed officials on Oct. 8 — in an unprecedented joint rate cut with other major central banks including the European Central Bank and Bank of England — lowered official rates by 0.5 percentage points.

Those global actions as well as Wednesday’s rate cut and “extraordinary liquidity measures’ should promote a return to moderate economic growth, the Fed said, though “downside risks to growth remain.”

Fed officials will monitor the economy and markets and “act as needed” to promote economic growth and price stability, the Fed said.

“The door is open to further easing,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics. He expects another half-percentage-point fed funds reduction at the next FOMC meeting on Dec. 16.

The Fed has also announced a series of programs to help ailing short-term debt markets, particularly by easing corporations” access to loans they need to fund their daily operations. The market for those IOUs, or commercial paper, has suffered as money market funds — the largest group of investors in the market — remain spooked in wake of the collapse of Lehman Brothers. Some money funds had incurred significant losses from defaulted Lehman debt.

Under the Money Market Investment Funding Facility the Fed announced last week, the Fed will provide funding to help money market funds purchase certificates of deposits and commercial paper. And through its Commercial Paper Funding Facility, a complementary program that started Monday, companies such as American Express (AXP) and General Electric (GE) can sell their three-month commercial paper to the Fed.

The Fed has also extended loans to banking organizations to purchase asset-backed commercial paper, started paying interest on banks” required and excess reserve balances and boosted the size of its Term Auction Facility auctions — all in effort to encourage lending.

There are preliminary signs the Fed’s backstop programs are working. A key lending rate, the London interbank offered rate, for instance, was lower Wednesday, extending a streak of consecutive daily declines over the past two weeks.

“The real story regarding the Federal Reserve is its various liquidity operations; the federal funds rate is second fiddle,” said Miller Tabak bond strategist Tony Crescenzi in a research note before the FOMC decision.

Still, the fed funds rate remains a powerful tool given the new global nature of rate cuts. Until recently, the U.S. was largely alone in easing rates given that the root cause of the global downturn has been the bursting of the U.S. housing bubble.

And even if the Fed is entering the final phase of its 13-month fed funds easing cycle, other central banks may just be starting. China’s central bank lowered rates Wednesday for the third time in two months, following an unexpected rate reduction on Monday by the Bank of Korea. Norway’s central bank also lowered rates Wednesday.

The ECB and BOE are expected to cut interest rates further when those central banks meet next month.

Text Of Federal Reserve’s Interest Rate Decision

NEW YORK — The following is the text of the Federal Reserve’s decision on interest rates released Wednesday, Oct. 29:

The Federal Open Market Committee has decided to lower its target for the federal funds rate 50 basis points to 1%.

The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping prospects for U.S. exports. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.

In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability.

Recent policy actions, including today’s rate reduction, coordinated interest rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth. Nevertheless, downside risks to growth remain. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 1-1/4%. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, and San Francisco.

-By Brian Blackstone and Maya Jackson Randall, Dow Jones Newswires

NEW YORK — The piles of money being pulled out of the stock market are going into investments that seem to have a common denominator: a guarantee from Uncle Sam.

Government-backed investments including Treasurys; institutional and retail money market funds, which are among the most recent beneficiaries of Washington largess; savings accounts and certificates of deposit, have all been gaining or holding assets.

Other traditional safe havens, like commercial paper and municipal bonds to name two, have been snubbed this time around by investors who remain wary of the credit markets where the recent economic problems began.

“When there is this type of tension, people go for the safest most liquid instrument,” says Ibbotson Associates Chief Economist Michele Gambera. “Something everybody sees as exactly like cash.”

While Wall Street likes to blame individual investors for being quick to panic, economists say the size and scope of the recent stocks market declines — hundreds of points on many days — suggest institutional sellers are responsible.

Losses in other investments, such as complex derivatives, can send these investors on a desperate errand to raise cash to avoid spooking their own creditors. Selling stocks is often the easiest way to do that.

“If you have any sort of call, if you need to demonstrate capital on your books, where do you go?” says Zachary Karabell, president of River Twice Research. “The irony is the equity markets are collapsing because they are working.”

In past market storms, these investors might have favored a range of investments, but this time they are focusing disproportionately on Treasurys.

As a result, yields have grown razor thin. Yields on 1-month bills were 0.31% Monday. While that’s up from a mid-October low of 0.05% two weeks ago, it’s well below inflation which is almost 5%, meaning investors are sacrificing purchasing power for security.

“It’s safe, but you’re not earning anything,” says Moody’s Economy.com analyst Scott Hoyt.

Another vehicle that’s kept institutions’ trust are money funds that themselves invest in Treasurys or other government-backed bonds — in stark contrast to “prime” funds that buy commercial paper.

The failure of one “prime” institutional money fund to maintain a net asset value of $1 in September caused a stampede, with investors pulling almost $263 billion from these funds in a single week. Since then, Washington’s promise to temporarily back money market fund assets has stemmed withdrawals.

But because the guarantee applies only to assets already in funds when the panic began, institutions have been steering new dollars almost exclusively to government-oriented funds, with $19 billion pouring into these during the week ended Oct. 21, compared with just $609 million for prime funds, according to iMoneyNet.

While individual investors may not move their money swiftly enough to drive the stock market hundreds of points in a day, there is little doubt they have been seeking cover just like larger players.

These investors pulled about $77 billion from conventional stock mutual funds during the third quarter and another $14 billion in the past two weeks, according to AMG Data Services. While in another bear market that money might have gone into bond funds, that hasn’t been happening this time. During the past two weeks investors actually pulled $15 billion from bond funds, slightly more than they yanked from stock funds.

“Normally investors are concerned about maximizing their fixed income,” says AMG President Robert Adler. “In this market they’re more concerned about protecting principal.”

Like supposedly more-sophisticated institutions, these investors seem to be looking for reassurance from Uncle Sam. Besides putting more money into retail government money market funds — about $900 million last week — investors are also steering dollars to holdings that carry guarantees from Washington.

Since last October, when the stock market peaked, savings deposits increased more than 5% to $4.03 trillion from $3.84 trillion through September. Assets in certificates of deposit rose 3.6% to $1.26 trillion from $1.21 trillion, according to data from the Federal Reserve.

Both types of investment are backed by the Federal Deposit Insurance Corp. up to $250,000, a temporary increase prompted by the financial crisis from the previous maximum of $100,000.

By Ian Salisbury
A Dow Jones Newswires Column

NEW YORK — Tempted by attractive yields and hints the credit freeze could be thawing, retail investors appear to be moving back to municipal bonds, helping fuel a rally that began earlier this week.

Sharply rising prices have driven yields slightly lower, but they remain close to all-time highs. Triple-A rated, 30-year municipal bonds yielded 5.37% on Wednesday, down from 5.94% last week, according to Municipal Market Data, which produces daily benchmark yield calculations. Yields were expected to fall another 0.05% to 0.15% Thursday, according to Randy Smolik, chief market strategist at MMD.

“We’re buying selectively,” says Hildy Richelson, president of Scarsdale Investment Group Ltd., a Blue Bell, Pa., firm that shops for bonds on behalf of individual investors. “We’ve seen some phenomenal yields come down the pike that we haven’t seen for years.”

Individual investors also appear to be willing to take a second look at municipal bond mutual funds. Two weeks ago the average tax-exempt close-end fund was trading 26% below the cumulative value of its holdings, a level Thomas J. Herzfeld Advisors Inc. analyst Cecilia Gondor calls “just incredible.” Since then, the average discount has closed considerably, to about 10.8%, suggesting retail investors have been buying the funds.

“When we saw the panic, investors that sold everything and bought treasuries, a lot of those were fixed-income investors,” says Gondor. With yields in Treasurys razor-thin, “they’re starting to come back.”

Open-end funds don’t tell quite the same story. Investors pulled about $1.1 billion out of municipal bond mutual funds during the week ended Wednesday, according to AMG Data Services. Still, that was a smaller loss than the $3.4 billion investors yanked during the previous two weeks.

While still-attractive yields may be luring investors, there is still reason to be cautions, according to Richelson.

“The full impact on municipal bonds will be felt later. As the economy contracts, local governments will experience problems,” she says. Moreover, downgrades of insurers like MBIA Inc. (MBI) and Ambac Financial Group Inc. (ABK), has made picking bonds much trickier.

“You used to be able to say that if the bond was insured and the insurer was AAA” — the highest grade — “you could rest safely,” she adds. “Now you need to look at the bonds’ underlying ratings and evaluate those.”

Richelson says she is comfortable with highly rated general obligation bonds, which pledge borrowers’ taxing power to repay creditors.

Currently, investors can buy 30-year, triple-A-rated general obligation bonds from Schaumburg, Ill., yielding 5.4% or Bellevue, Wash., yielding 5.2%, according to Schwab.com. Both bonds have double AA or AAA underlying ratings.

Bonds issued by top universities like Yale and Harvard, may also be attractive, says Smolik. These bonds, which are highly-rated and also boast large endowment funds to help back them, were yielding as much as 6.1% last week.

Not everyone is sold on muni bonds just yet.

“We’re very cautious,” says John Bacci, president of Linthicum, Md.-based Foundation Financial Advisors Inc.

“When Arnold Schwarzenegger gets up and says California is broke, that doesn’t give me a warm and fuzzy feeling,” he adds, referring to Gov. Schwarzenegger’s recent suggestion that his state might need an emergency federal loan.

Bacci says the risk of buying muni bonds that actually go into default is slight, but he thinks there is a chance some muni bonds could be downgraded by ratings agencies, meaning investors who didn’t want to hold the bonds to maturity could take a price hit when they try to sell.

He also doesn’t like the fact the bonds’ prices have fallen so sharply. While that means bonds may be cheap right now, it also suggests they could still be highly volatile, something most fixed-income investors don’t want.

“If you buy now you are buying for growth,” he says. “If I am looking for stock market returns, I will buy stocks.”

Blue-chip stocks are also offering attractive yields with better opportunities for growth, according to Bacci. Among his picks: Shares of Pfizer Inc. (PFE) yielding 7.5% and General Electric Co. (GE) yielding 6.5%. Of course, those yields are taxable.

By Ian Salisbury
A DOW JONES NEWSWIRES COLUMN