NATIONAL ECONOMY Stocks rally after Fed lets interest rates stay same
The Dow had its biggest three-day gain since 2004.
NEW YORK (AP) -- Wall Street rallied sharply Wednesday after an economic assessment by the Federal Reserve ignited hopes that the central bank has warmed to the idea of lowering short-term interest rates.
Largely thanks to Wednesday's triple-digit gains, the Dow Jones industrials have surged 337 points this week, the best three-day performance for the blue chip average since November 2004.
Investors had nervously awaited the economic statement that accompanied the Fed's decision to leave short-term interest rates unchanged at 5.25 percent, and were encouraged that the central bank didn't refer to the possibility of "additional firming" of rates as it did in January.
Policymakers said "future policy adjustments" will depend on inflation and growth -- more neutral language that the market interpreted as opening the way for a possible rate cut. The Fed indicated that it remains vigilant about the threat of inflation, though.
The market was also relieved that the central bank left in place language in its statement that it still expects the economy will "continue to expand at a moderate pace."
Though a slowdown in the economy likely would quell the threat of inflation and perhaps open the way for a rate cut, it would also dent corporate profits.
"I think it did a bit to assuage the equity market's concerns that the Fed understands there is a possibility that the drag on the consumer could bring GDP down below where they expect," said Quincy Krosby, chief investment strategist at The Hartford, referring to gross domestic product -- the broadest measure of the economy.
"They made it clear that they remain data-dependent. However, given the data they have today, they see an economy that is still expanding, albeit more slowly."
According to preliminary calculations, the Dow Jones industrial average rose 159.42, or 1.30 percent, to 12,447.52, after having been little changed before the Fed announcement. It was the index's biggest one-day gain since July 24.
Broader stock indicators also posted strong gains. The Standard & amp; Poor's 500 index jumped 24.10, or 1.71 percent, to 1,435.04, and the Nasdaq composite index advanced 47.71, or 1.98 percent, to 2,455.92.
Bonds rose following the Fed decision. The yield on the benchmark 10-year Treasury note fell to 4.54 percent from 4.55 percent late Tuesday. The dollar was mixed against other major currencies, while gold prices rose.