Bank stocks and the broader markets soared Wednesday after the Federal Reserve's policymaking committee said the central bank would buy long-term Treasuries to help reinvigorate the economy.
The KBW Bank Index rose 11.14%, the Dow Jones industrial average 1.23% and the Standard & Poor's 500 index 2.09%.
The Federal Open Market Committee said the central bank would buy up to $300 billion of long-term Treasury securities in the next six months "to help improve conditions in private credit markets." The Fed's announcement came in conjunction with the committee's decision to retain its historically low key interest rate.
Investors loved the news, said Gary Townsend, the chief executive of Hill-Townsend Capital LLC. "The market views the Fed as being extremely bullish by keeping interest rates low and by continuing to be very accommodative in the foreseeable future," he said.
Scott A. Anderson, a senior economist at Wells Fargo & Co., wrote in a note Wednesday that the Fed's move to push down general long-term interest rates and restart a refinancing wave is "a necessary step toward recovery," given the reluctance of foreigners lately to finance the growing federal deficit.
However, in the longer term, the U.S. economy could face higher inflation and higher interest rates down the road, Anderson wrote.
The Fed's policymaking committee also made an aggressive move to reduce mortgage rates Wednesday by promising to buy an additional $750 billion of agency mortgage-backed securities.
The announcement brought the Fed's total commitment to this market to $1.25 trillion and is likely to expand the central bank's balance sheet, which was contracting in recent weeks and totaled $1.9 trillion on March 11. In its statement the Federal Open Market Committee said the central bank will make the purchases to "provide greater support to mortgage lending and housing markets."
JPMorgan Chase & Co. closed up 7.8%; Bank of America Corp. 22.3%; Citigroup Inc., up 57 cents, to $3.08; Wells Fargo & Co. 17.5%; U.S. Bancorp 9%; Bank of New York Mellon Corp. 14.6%, and State Street Corp. 13.5%.
Among the regionals, SunTrust Banks Inc. rose 16.7%; Marshall & Ilsley Corp. 17%; Comerica Inc. 11.7%; M&T Bank Corp. 5.4%; Regions Financial Corp. 86 cents, to $4.95; Fifth Third Bancorp 27 cents, to $2.22, and City National Corp. 8.2%.