NEW YORK — The stock market bounced to its highest close since last spring Wednesday after the Federal Reserve pledged to keep the federal funds rate near zero for about three more years.
Bond yields dropped sharply, then climbed back later in the day when investors began looking more closely into the Fed’s deliberations. The yield on the five-year Treasury note touched an all-time low.
The big moves in both markets came after the Fed’s monetary-policy committee said it was unlikely to raise interest rates before late 2014. It had previously promised to keep rates low into the middle of 2013.
The Fed cut the federal funds rate to near zero in December 2008 and has held them there ever since. The announcement was a sign that the Fed expects the economy, which is improving, to need significant help for three more years.
The announcement guaranteed that short-term loans will remain cheap, making it easier for investors to finance longer-term purchases, such as 10- and 30-year Treasurys, said John Canally, investment strategist and economist for LPL Financial.
Monetary decisions by the Fed can change the market’s momentum in the short term but rarely have a longer-term impact, Canally warned.
The market changed directions after 22 of the past 24 Fed policy announcements, he said, yet the change evaporates quickly. The market essentially has an equal chance of rising or falling in the five days after Fed meetings, he said.
“It’s a coin flip, really,” Canally said.
The Dow Jones industrial average was down as much as 95 points in the morning and about 60 points before the Fed announcement. It shot to a gain of 103 points during the afternoon.
The Dow closed up 81.21 points, or 0.6 percent, at 12,756.96. That’s the highest close since May. The Dow peaked for last year in April at 12,810. Before that, it had not been so high since May 2008.
In the bond market, the yield on the 10-year Treasury note was at 2.05 percent an hour before the announcement and quickly fell to 1.92, a significant move. It rose to 1.99 percent two hours later.
Technology stocks rose all morning, bucking the wider market, after Apple reported its best quarter and blew away analysts’ estimates.
