Fed Gives Stocks a Boost

Looking forward, the Fed said the economy seems likely to expand at a moderate pace over coming quarters.

The Fed also said that readings on core inflation "have improved modestly in recent months, and inflation pressures seem likely to moderate over time. However, the high level of resource utilization has the potential to sustain inflation pressures," the statement said.

The FOMC reiterated its views on the possibility of further hikes, saying that "the extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information."

"The market had expectations of the text of the statement to be much more hawkish," said Jay Suskind, head of institutional equity trading with Ryan Beck & Co. "Today's statement and the economic numbers over the last few days has put a Goldilocks economy out there again. If we stay stable and continue to see growth, we should see the market react positively."

Treasuries were higher after the statement. The 10-year note rose 11/32 in price to yield 4.83%, and the 30-year bond was higher by 27/32 to yield 4.92%.

The Fed release followed fresh government data that showed the U.S. economy grew at a stronger-than-expected rate during the fourth quarter. The Commerce Department said gross domestic product rose 3.5% last quarter, up from a 2% annual pace in the third quarter. Economists had estimated the economy grew at a 3% rate.