The Fed's policy statement indicates the U.S. central bank will remain on a dovish path, which is very supportive for risk assets, at least on the short term, said Putri Pascualy, managing director for PAAMCO in Irvine, California. In the absence of inflation in conventional measures, that argues for patience on the monetary authorities' part in raising interest rates or reducing the central bank's balance sheet.
After the Fed statement, U.S. stocks added to gains with the S&P 500 index rising 1.5 percent, while the dollar and short-term yields fell as investors gauged an even lower probability of additional rate hikes any time soon.
The Philadelphia Semiconductor index surged 2.87 percent, while the S&P technology index jumped 3.03 percent.
Along with better-than-feared quarterly results from Apple Inc, the Fed's comments helped Wall Street reverse two down days triggered by profit warnings from USA bellwethers that signaled a bigger impact from a slowdown in China. Analysts said the statement seemed as if the Fed did a turnaround from its previous generally upbeat economic stance. "The market will read this as they're done with the hiking cycle and that a halting in the balance sheet runoff is more likely than another rate hike".
"The case for raising rates has decreased somewhat", Fed chairman Jerome Powell said at a news conference following the rate announcement. It's a word he adopted this month after the Fed's string of four rate hikes a year ago had helped send the stock market into a tailspin over fear that the central bank might be tightening credit too aggressively.
Following the Fed's rate announcement, all three main USA stock indexes extended gains from earlier in the session and the S&P 500 closed at its highest since December 6.
The Fed on Wednesday left its overnight benchmark lending rate in a target range of 2.25 percent to 2.50 percent.
"The Fed dropped a commitment to gradual rate hikes from its policy statement".
"If we do get some sort of news of a de-escalation in the trade debacle between the USA and China that would remove a key overhang, a key risk from the equity outlook and would help to place a floor under equity markets broadly".
The US central bank cited muted inflation and recent economic "cross currents" to explain the shift. But it remains nearly 7 percent below its record high of 26,828, reached on October 3. Facebook shares then leapt 11 percent after hours after it had reported better-than-expected profits following a year of high profile data scandals.
"Any positive news from the US-China trade negotiations or a softening of the divisive rhetoric coming out of DC should also bolster share prices".