Stocks Like Fed's New Language

Updated from 4:04 p.m. EST

Stocks ended higher Tuesday after the Federal Reserve made its first public gesture toward ending the current cycle of interest rate hikes.

The Dow Jones Industrial Average rose 55.95 points, or 0.52%, to 10,823.72, having been essentially flat prior to the Fed meeting. The S&P 500 rose 7 points, 0.56%, to 1267.43, and the Nasdaq Composite gained 4.05 points, or 0.18%, to 2265.

"The market reacted positively to the change in the Fed statement today," said Peter Cardillo, chief market analyst with SW Bach & Co. "The debate now is where the Fed will stop. Tomorrow we can get back to focusing on economic data and oil prices."

The policymaking Federal Open Market Committee raised its federal funds rate by 25 basis points to 4.25%, saying it believes that "possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures." The Fed has raised rates at 13 straight meetings.

Wall Street keyed on the statement that accompanied the decision, and the FOMC didn't disappoint the bulls. The most prominent change in the statement was a revision to the Fed's description of its own stance, which until now it described as "policy accommodation." That phrase was dropped.

In the statement, the Fed went from saying in November that "the committee believes that policy accommodation can be removed at a pace that is likely to be measured" to saying now that "some further measured policy firming is likely to be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance." The Fed will "respond to changes in economic prospects as needed to foster these objectives."

"It is becoming more likely that the Federal Reserve may pause at the 4.50% rate level and may want to prepare the market for this change at least one meeting in advance," said Paul Mendelsohn, chief investment strategist with Windham Financial, said before the decision was announced. Mendelsohn also said he expected to see "fireworks" because the market was anticipating a change in the policy statement.