Some investors advised caution, even as the stock market hit all-time highs.
While the Fed’s decision is positive for the market in the short term, “investors need to take a step back and consider the idea that maybe the U.S economy is on weaker footing than we originally thought,” said Marc Doss, regional chief investment officer for Wells Fargo Private Bank.
Bond prices also rose sharply, sending yields lower. The yield on the 10-year Treasury note fell to 2.68 percent from 2.87 percent a minute before the Fed released its statement. It was a rush into bonds not seen since October 2011. The yield on the 10-year Treasury note is a benchmark for many kinds of lending rates, including home mortgages.
As bond yields plunged, investors snapped up stocks that tend to pay richer dividends, such as utilities. The Dow Jones utility average jumped 3 percent, its best day in two years.
Stocks of home builders also rose as investors speculated that the Fed’s pledge to keep interest rates low would continue to benefit the housing market. Pulte Homes, Hovnanian and Toll Brothers were up more than 5 percent each, while D.R. Horton jumped nearly 7 percent.
The price of gold jumped $55, or 4 percent, to $1,364 an ounce.
In June, Fed Chairman Ben Bernanke laid out a possible timetable for easing up on the bond purchases, and pledged to end them by the middle of 2014, if the economy continued to improve.
The Fed’s next meeting is October 29-30, another opportunity for the central bank to start reducing the program.
Wells Fargo’s Doss and other investors said the Fed might be waiting to see what happens in Washington, D.C. in the coming weeks. A debate over the debt ceiling and a showdown between Congressional Republicans and the White House over the budget looms.
Bernanke probably kept the stimulus in place because he wanted to be certain the economy was ready to function without the Fed’s help, said Matt Tom, head of public fixed income at ING U.S. Investment Management.
Cutting back before the economy was ready would have been much more destabilizing to the market, he said.