Stocks got a bump higher in afternoon trading after the Federal Reserve indicated that it could leave interest rates alone in the coming months, taking a pause from its credit-tightening program.
The Fed's policy statement indicates the United States central bank will remain on a dovish path, which is very supportive for risk assets, at least on the short term, said Putri Pascualy, managing director for PAAMCO in Irvine, California.
As result of the Fed's reversal, stocks extended their rally after the FOMC's statement and Fed Chairman Jerome Powell's press conference Wednesday afternoon, with the major US averages ending up 1.8%-2.2%.
Chairman Jerome Powell told reporters that while the U.S. economy was in a good place, slowing growth in China and Europe, Brexit, trade negotiations and the effects of the five-week U.S. government shutdown had sent conflicting signals on the outlook.
The Fed also said it could adjust the pace of reduction of its massive securities holdings, after markets became concerned that the current process was too rigid. The Fed's balance sheet surged following the 2008 financial crisis, and many investors believe its effort to shrink it may stifle economic growth.
"In light of global economic and financial developments and muted inflation pressures, the committee will be patient as it determines" the timing and need for any further increases, the policy-setting Federal Open Market Committee said.
Fed Chairman Jerome Powell is scheduled to hold a press conference at 2:30 p.m. ET.
Job gains have been strong, on average, in recent months, and the unemployment rate has remained low.
Of course, the Fed didn't specifically say that its campaign to bring interest rates back to more normal levels was over.
The central bank has been under pressure to slow its pace of rate hikes in light of weakening economic growth overseas and the USA trade dispute with China. The Fed can lower its base interest rate, known as the federal funds rate, to help to stimulate the economy or raise it to stop it overheating. The Nasdaq gained 71 points, or 1 percent, to 7,100. Facebook shares then leapt 11 percent after hours after it had reported better-than-expected profits following a year of high profile data scandals.
With the Fed decision out of the way, investors focused their attention on a pivotal round of high-level U.S.
After an additional one-quarter-percentage-point increase in December, to 2.25%-2.50%, Powell agreed Wednesday the Fed was close to neutral, meaning the key rate was neither boosting nor retarding the economy.