Benchmark indices in the US continued to extend their relief rally after a bruising four-week stretch that took the S&P 500 into “correction territory.” Stocks gained after the US Federal Reserve stuck to their initial revised guidance of two rate cuts for 2025.

The Dow Jones gained nearly 400 points, while the S&P 500 added 1.1% to its tally. The Nasdaq too advanced 1.4% by the close.

In what was a widely anticipated decision, the world’s largest central bank kept interest rates unchanged between 4.25% to 4.5%, adding that the uncertainty around the economic outlook has increased. However, it saw no need for drastic action in the face of Donald Trump’s tariff wars.

The jump in stocks was the best in any Fed policy day since July last year. The yield on 10-year Treasuries declined four basis points to 4.24%. The dollar pared its advance to 0.2%. Yields on the two-year fell below 4%.
“Powell came in and gave a pretty dovish performance in the sense of, ‘We got this, we’re in a good place, we can afford to wait, we’ll see how it goes, we’re gonna get the job done’,” said Bill Dudley, the former president of the New York Fed, on Bloomberg Television. “He was pretty reassuring to people that this was all quite manageable.”

The Fed will also start shrinking its balance sheet at a slower pace starting in April, reducing the amount of bond holdings it lets roll off every month.

Stocks rallied despite changes to Fed forecasts that could be viewed as bearish for equities, among them a tamping down of growth expectations in 2025 and a higher estimate of inflation. However, there was some let off in momentum during the final hour of trade as all the three indices ended off the day’s high.

That’s because the correction in stocks already accounted for a significantly worse economic backdrop than existed when the Fed last met, according to Amanda Lynam at BlackRock.

“A lot of that was baked in,” Lynam said on Bloomberg Television. “We’ve had such a bruising few weeks in the equity market. Most forecasters have reflected lower growth and higher inflation, and that’s part of what’s driving us here.”

(With inputs from agencies.)