After the Dow Jones Industrial Average dropped more than 200 points just before 3pm ET., the index staged an incredible 636 point turnaround to close at 11,240, up 3.98% for the day — just one day after one of the worst performances in stocks market history.
The S&P 500 index was up 4.74, the day after the gauge lost 6.7%, the most since December 2008. The Nasdaq, meanwhile, was up a stunning 5.29% in trading today.
In all, the day registered as the biggest rally of the last two years for U.S. markets. The rally ensued just moments after the
Federal Reserve pledged for the first time to keep its benchmark interest rate at a record low at least through mid-2013 in a bid to revive the flagging recovery after a worldwide stock rout.
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In its meeting today, the Federal Open Market Committee discussed a range of policy tools to bolster the economy and said it is “prepared to employ these tools as appropriate,” it said in a statement in Washington. Three members of the FOMC dissented, preferring to maintain the pledge to keep rates low for an “extended period.”
The decision represents the biggest effort since November to spark the U.S. economy and revive confidence while stopping short of initiating a third round of large-scale asset purchases. Chairman Ben S. Bernanke and his colleagues acted after reports showed the economy was slowing and an unprecedented downgrade to the U.S. credit rating sent stocks tumbling from Sydney to New York.
Stocks dipped shortly after the announcement, in which the Fed acknowledged that the U.S. economy was growing at a significantly slower rate that it had anticipated.
The Fed offered a dimmer view of the economy than it did in the last statement in late June. “Economic growth so far this year has been considerably slower than the committee had expected,” it said. The Fed also said it expects a “somewhat slower pace of recovery over coming quarters,” adding that “downside risks to the economic outlook have increased.”
The Fed left its target for the federal funds rate in a range of zero to 0.25 percent, where it's been since December 2008. It said it will maintain its policy of reinvesting maturing securities without saying for how long.
Richard Fisher, president of the Dallas Fed, Charles Plosser of Philadelphia and Narayana Kocherlakota of the Minneapolis Fed all dissented.
The Fed's decision came after Standard & Poor's unprecedented downgrade of the U.S. credit rating on Aug. 5 sent share prices tumbling on concern a global economic slowdown will deepen. Fitch Ratings and Moody's Investors Service affirmed their top grades for U.S. debt.
Excerpts from Bloomberg newswires were used in this report.
