NEW YORK — The Federal Reserve is keeping Wall Street’s big rally alive, and giving the Treasury market a boost as well.
The Fed said Wednesday that it will pump about $1 trillion into the economy, including the purchase of up to $300 billion of long-term Treasury securities over the next six months, as it works to revive the housing market and halt a punishing recession.
The decision sent both government bonds and stocks soaring as investors expected the move to drive down borrowing costs for everything from mortgages to credit cards. The Dow Jones industrial average reversed early losses to end up nearly 91 points as the yield of the benchmark 10-year Treasury note plunged.
The move, analysts said, is likely to produce an immediate drop in mortgage rates of 0.25 to 0.5 percentage points, as the Fed made clear that it would be able to purchase the majority of new mortgage-backed securities for at least the rest of the year and possibly longer.
That’s great news for those borrowers with good incomes and healthy credit scores who are able to qualify for a loan. But dramatically tighter lending standards have made it tough for many borrowers to qualify.
Still, it was a plus for the housing industry, which many analysts believe must recover in order for the overall economy to prosper again.
Homebuilder and financial company stocks shot higher on the news, which came a day after the Commerce Department reported better-than-expected housing-start numbers for February.
The Dow Jones industrial average rose 90.88, 1.2 percent, to 7,486.58.
Broader stock indicators jumped too. The Standard & Poor’s 500 added 16.23, 2.1 percent, to 794.35, and the Nasdaq composite rose 29.11, 2 percent, to 1,491.22.
Stocks have risen for six out of the past seven days. Since the market rally began last week, the Dow has jumped 14.4 percent and the S&P 500 has soared 17.4 percent.
For both the stock and bond markets, the Fed’s announcement was a welcome surprise. After the last Fed meeting in January, policymakers said they were considering buying government debt.
But investors were skeptical the Fed would actually go through with it.
“We’ve suffered over the last month or so with disappointment that a lot of the initiatives out of the administration haven’t materialized, and here is the Fed moving in with very strong actions to get things back on track,” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.
