Stocks surged Tuesday after the Federal Reserve pledged to keep interest rates at their historic lows at least through mid-2013 -- a sign of how serious the Fed is about heading off another recession, and how few tools it has to accomplish that task.
The Dow Jones industrial average rose 430 points, or 4 percent, to 11,239 at the 4 p.m. close in a wild session of swinging prices. Gainers included Bank of America, up 17 percent, and Alcoa, up 8 percent. On Monday, shares fell the most since December 2008, after Standard & Poor's downgraded U.S. debt last Friday.
The Federal Reserve said it would keeping a key Federal interest rate low because economic growth this year had been "considerably slower than the Committee had expected."
That move confirmed what most Americans are feeling -- things simply aren't getting better when it comes to the overall economy. And it's historic. Never before has the Fed given a specific timeframe for keeping rates low, in the past favoring the vague "extended period" that the markets interpreted as meaning a couple more months.
Bernanke and Co. downgraded their assessment of the economy, noting the increasingly dire jobs situation, slowing consumer spending and the sagging housing market.
"The Committee now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate," says the post-meeting statement. "Moreover, downside risks to the economic outlook have increased."
While they put a two-year time horizon on the 0-0.25 percent interest rates, they did not announce an expansion of their quantitative easing programs, which were meant to stimulate the economy even further. They suggested they'd keep the $2 trillion currently deployed in the programs "reinvested" instead of allowing them to slowly expire over time as the investments got paid back. The program might be expanded if the economy warrants it.
Three members -- l regional Fed presidents serving as voting members for a limited term -- dissented, saying they'd like to have maintained the "extended period" language.
While stocks made strong gains, gold continued to set new records, rising 2 percent to $1,743 an ounce.
The Dow after it hit its lowest point in 10 months Monday, essentially losing all its gains for the year.
Though President Obama had tried Monday, in a televised address, to rally the market, his encouragement proved fruitless. Said Ken Picari of ICAP Securities, "It was clear yesterday that the president, as much as he tried, was not helpful." He dismissed Obama's remarks as "more of the same."
Doreen Mogavero of Mogavero Lee and Co. said buy-backs accounted for some of today's activity. "You're seeing a lot of CEOs come into the marketplace and buy their own stocks. I think that certainly indicates faith in their corporations and let's face it what drives the stock market is corporate profits," Mogavero told ABCNews.com.
Standard & Poor's downgrades of U.S. bonds and mortgage debt backed by the government have sent stocks reeling worldwide, erasing trillions of dollars in market value.
The Dow fell more than 600 points Monday after a one-two punch: the first-ever Standard & Poor's downgrade of U.S. debt, then the downgrading of government-backed mortgage debt. The Dow's one-day drop was its biggest point loss in a single day since Dec. 1, 2008, and its sixth biggest point drop in its history.
The Dow closed down 634 points, the S&P 500 lost 79 points and the Nasdaq ended 174 points lower, dropping almost 7 percent.
Obama spoke Monday afternoon, saying the United States knew well before the S&P downgrade that it had a debt problem. "The U.S. will always be a triple-A country, despite what rating agencies say," he said.
The good news, Obama said, is the debt is a "solvable" problem that can be addressed through tax reform and spending cuts.
Investors didn't seem as optimistic: The Dow plunged an additional 100 points to hover around 500 after the speech.
Monday saw about $2.3 trillion in U.S. investor wealth wiped out.