“While Federal Reserve policy makers were not very upbeat about the outlook for the economy yesterday, their statement that they would keep their benchmark interest rate low for a long time could help start the stock market moving again,” writes Jonathan Fuerbringer in today’s New York Times.

“The three main stock gauges have been locked in a trading range this summer. The Dow Jones industrial average and the Standard & Poor’s 500-stock index are still below the highs they reached on June 17. The Nasdaq composite index is still below where it was on July 14. Many economists expected the long decline in jobs to turn the corner in July. Instead, they were surprised by another loss.”

“And the tone of the Fed’s statement was not so rosy. It said that the upside and downside risks to the economy were still “roughly equal” and that “on balance” the threat of deflation, though minor, was greater than inflation in the foreseeable future.”

“But some analysts argue that the Fed’s interest rate commitment should restrain the increase in longer-term rates, giving the weak recovery time to gain strength. With this limit on rate increases, investors are also more likely to believe that the recent rebound in corporate profits, a significant driver of share prices, can continue, setting the stage for a stock market rally.”

“Corporate profits, as included in the gross domestic product, have been rising the last five quarters, from the quarter in which the National Bureau of Economic Research said the most recent recession ended. Economists forecast that such profits also rose in the second quarter and should climb even higher in the current one.”

“A seven-quarter run would be the first for before-tax profits since a 10-quarter rise that ended in the fourth-quarter of 1988 and the first for after-tax profits since a nine-quarter run that finished in the second quarter of 1996.”

“The 14.4 percent rise in after-tax profits through the latest five-quarter run is slightly bigger then the 14.2 percent jump in the first five quarters after the previous recession, which ended in the first quarter of 1991.”

“Operating earnings in the second quarter are up 9 percent for the 458 companies in the S.& P. 500 that have reported so far, compared with figures in the period a year earlier, according to Thomson First Call. The final number could be slightly higher, which would be the fifth consecutive quarterly rise for this measure.”

“The outlook for the third quarter is growth of 13.5 percent, a forecast that has actually inched slightly higher since the beginning of last month.”

“But investors may not be convinced yet because the general profit environment is not as strong as it was around the 1990-91 recession. In the 32 quarters from the fourth period of 1989 through the third quarter of 1997, there were only four quarterly declines in G.D.P. profits, and one of those was a slip of just 0.02 percent. In the 32 quarters ended in March, there were 12 quarterly declines.”

“In addition, the level of after-tax profits, which was $490.2 billion in the first quarter of this year, is still well below the levels reached in the bull market fueled by technology stocks.”

” ‘I think the negative attitude regarding profitability is because we still have that dot-com high-water mark for profits in our head, and until we get past it, profits will always be bad,’ said James W. Paulsen, chief investment officer at Wells Capital Management in Minneapolis.”