Stocks rally after positive Fed outlook

U.S. stocks rose on Wednesday as the Federal Reserve announced its decision to keep interest rates unchanged.

The central bank left the target range for the federal funds rate at 0 percent to 0.25 percent, and issued a statement saying the U.S. economy’s decline appears to have halted, although economic activity is likely to remain sluggish in the near future.

That said, "[the Fed expects] that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability," the announcement further specified.

The major indices ended the day on a positive note, with The Dow Jones industrial average gaining 1.3 percent, while the S&P 500 index rose 1.15 percent and the Nasdaq composite advanced 1.47 percent.

The rally was also helped by an optimistic report suggesting the housing market is showing signs of recovery, with existing-home sales rising 3.8 percent in the second quarter of 2009.

However, some analysts caution the rally may not last until we see more reports reinforce the claim the recovery is already underway, while others criticize the Fed’s dismissal of inflationary pressures, suggesting this may be an underestimated threat to the economy’s long-term health.

In fact, stocks closed lower yesterday than the day’s highs which were getting closer to a 2009 record, suggesting investors are still cautious.