Stocks recovered from their afternoon lows to close higher Wednesday after Ben Bernanke said the Fed may look to reinvest in mortgage backed securities to provide additional support to the weak housing market.
Stocks had shaved their gains earlier after the Fed slashed its growth forecasts, while raising unemployment projections and following a report that said the sixth tranche of loans to Greece may not be paid until after Greek referendum is held.
The Dow Jones Industrial Average rallied 178.08 points, or 1.53 percent, to close at 11,836.04, led by BofA and Alcoa .
The S&P 500 gained 19.62 points, or 1.61 percent, to end at 1,237.90. The Nasdaq jumped 33.02 points, or 1.27 percent, to finish at 2,639.98. However, both indexes are still in negative territory for the year.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, finished below 33.
All 10 S&P sectors closed higher, led by energy and utilities.
“Growth is not all that strong and overseas trends are adverse, so I think [the Fed] is concerned that things could not only weaken in the next year, but also longer term,” said Bruce McCain, chief investment strategist at Key Private Bank.
The Fed left interest rates unchangedand announced that they are holding off on any new actions to aid the economy, but left open the possibility of taking further steps in the near future.
“There were not a lot of surprises here—a lot of the language was similar to the last meeting,” said Scott Brown, chief economist at Raymond James.
“Europe is going to remain important and [their problems] are not going to go away anytime soon,” added Brown. “The ECB meeting tomorrow with the new President there will be interesting to watch…it will be a fairly smooth transition.”
In addition, the Fed cut its growth forecastto between 1.6 and 1.7 percent for 2011, a full percentage point lower than their projections from June.