At the end of a two-day meeting Wednesday, the Fed also cut its forecasts for economic growth through 2017 and said that it needs to see more improvement in the job market and higher inflation before it raises rates.
The Fed has kept interest rates extremely low for six years, which has helped drive stock and bond prices higher by making borrowing cheap.
The Dow Jones industrial average jumped 227 points, or 1.3 per cent, to 18,076.
The Standard & Poor's 500 rose 25 points, or 1.2 per cent, to 2,099. The Nasdaq climbed 45 points, or 0.9 per cent, to 4,982.
The yield on the 10-year Treasury note dropped to 1.92 per cent.