Fed Sparks Stock Rally

Updated from 4:16 p.m. EDT

Stocks soared Wednesday after the Federal Reserve's latest policy statement took a seemingly softer tone about interest rate tightening.

The Dow Jones Industrial Average surged 159.42 points, or 1.3%, to 12,447.52. The S&P 500 added 24.10 points, or 1.71%, to 1435.04, and the Nasdaq Composite gained 47.71 points, or 1.98%, to 2455.92.

With the rally, the Dow is now just 15 points below the unchanged mark for the year. Both the S&P 500 and Nasdaq moved back in positive territory for the year.

The major averages spent much of the day treading water before the Federal Open Market Committee's 2:15 p.m. EDT policy statement. The central bank decided to keep its federal funds target unchanged at 5.25% for the sixth straight meeting, an outcome that had been widely expected on Wall Street.

The FOMC said in its policy statement that while recent indicators have been "mixed" and the adjustment in the housing sector is ongoing, "the economy seems likely to continue to expand at a moderate pace over coming quarters."

The Fed also said that readings on core inflation "have been somewhat elevated," and that "the committee's predominant policy concern remains the risk that inflation will fail to moderate as expected."

However, the Fed dropped the pronouncement that the "extent and timing of any additional firming that may be needed" will depend on economic data, and instead used the more neutral term of "future policy adjustments."

"This is a grudging removal of the tightening bias," said Ian Shepherdson, chief economist with High Frequency Economics. "The Fed is not quite as worried about inflation but is not yet sufficiently relaxed to abandon the idea it might have to hike again. Despite 'mixed' data and the 'ongoing' housing 'adjustment,' the Fed still expects 'moderate' growth."

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