Stocks Rally As Fed's Yellen Eases Worries About Rate Hikes

NEW YORK (TheStreet) -- U.S. stocks rallied to record levels Wednesday after the Federal Reserve eased concerns that the central bank could initiate its first rate hike before the summer.

The Dow Jones Industrial Average rose 0.15% to settle at 17,156.85 after knocking out the prior session's intraday record with a fresh high of 17,221.11. The S&P 500 was higher by 0.13% to 2,001.57. The Nasdaq was up 0.21% to 4,562.19.

"The Fed is very, very comfortable with the risk of being possibly behind the curve vs. inflation," said Erik Davidson, San Francisco-based deputy chief investment officer for Wells Fargo. "They will wait until they see the whites of the eyes of inflation before they start to lift off rates."

Though it wasn't a big surprise, Wall Street liked the fact that the Federal Reserve will continue its near-zero interest rate policy for a "considerable time." The statement also made plenty of references to slack in the labor market and less-than-target inflation levels, also helping to reduce expectations of a first-quarter rate hike and increasing the anticipation of sustained tailwinds from Fed monetary stimulus.

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After the post-Fed statement pop, stocks continued to extend gains with Fed Chair Janet Yellen's muted reaction to a recent San Francisco Fed paper suggesting that there has been a divergence between the market's views and the views of the committee -- resulting in investors underestimating the possibility that the central bank could hike rates earlier than expected.

"I don't frankly think it's completely clear that such a gap exists," said Yellen. "To the extent there is a gap -- one reason for it is could be that the market and participants have different views on the evolution of economic conditions. So differences in the probabilities of different outcomes."

"The committee will try to learn from market views," she added.

Data released before the Fed statement showed the National Association of Home Builders Housing Market Index for September jumping 4 points to 59. Homebuilder confidence hit the highest level in nearly nine years.

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