NEW YORK — The stock market hit a record high Wednesday as investors cheered the Federal Reserve’s surprise decision to keep its economic stimulus program in place.
Stocks traded slightly lower throughout the morning, but took off after the Fed’s decision in the early afternoon. Bond yields fell sharply — their biggest move in nearly two years. The price of gold had its biggest one-day jump in four years as traders anticipated that the Fed’s decision might cause inflation.
Fed policymakers decided to maintain the central bank’s $85 billion in monthly bond purchases, a program that has been in place since December 2012. The bond purchases encouraged borrowing by keeping interest rates low and encouraging investors to buy stocks by making bonds more expensive in comparison.
The S&P 500 surged 20.76 points, or 1.2 percent, to 1,725.52, slicing through its previous all-time high of 1,709.67 set on Aug. 2.
The Dow Jones industrial average jumped 147.21 points, or 1 percent, to 15,676.94, also above its previous record high of 15,658.36 from Aug. 2.
The Nasdaq composite rose 37.94 points, 1 percent, to 3,783.64.
The fate of the Fed’s economic stimulus program has been the biggest question on Wall Street for months. It was widely expected that the Fed would cut back on its bond buying at the September meeting.
In June, Fed Chairman Ben Bernanke laid out a possible timetable for easing up on the bond purchases, and pledged to end them by the middle of 2014, if the economy continued to improve.
The Fed’s next meeting is October 29 and 30, another opportunity for the central bank to start reducing the program.
Bernanke probably kept the stimulus in place because he wanted to be certain the economy was ready to function without the Fed’s help, said Matt Tom, head of public fixed income at ING U.S. Investment Management.
Cutting back before the economy was ready would have been much more destabilizing to the market, he said.