A Trader works on the floor of the New York Stock Exchange
A Trader works on the floor of the New York Stock Exchange Reuters

U.S. stocks soared as the Federal Reserve promised low interest rates until mid-2013 and stated that it expects inflation to remain low.

The S&P 500 rose 53.07 points, or 4.74 percent, to close at 1,172.53. The Dow Jones Industrial Average jumped 429.92 points, or 3.98 percent, to end at 11,239.77. The NASADQ Composite surged 5.29 percent.

The rally was fueled by a late afternoon buying spree that occurred after investors digested the Federal Reserve's policy statement, released at 2:15 p.m. ET, and interpreted it to be dovish.

In an unprecedented move, the Federal Reserve moved away from its vague "extended period" language to a clearer "at least through mid-2013" phrase to communicate how long it plans to leave interest rates unchanged at near-zero percent.

This provides clarity to the market and enough assurance to convince some investors to jump into risk assets like U.S. stocks.

The Fed statement also stated the Fed expects inflation to be "at levels at or below" what it deems to be appropriate. First, this makes it easier for the Fed to keep its promise of leaving rates low, assuming their expectations materialize.

Second, it possibly sets up the Fed to declare in subsequent statements that inflation is below what it deems appropriate. Back in September 2010, declaring inflation to be below appropriate levels is exactly how the Fed signaled the arrival of QE2.