Fed Holds Rates at Near-Zero to Mid-2013 & Other Dovish Signals

"We view the FOMC statement as aggressively dovish, even beyond our expectations," said Dan Dorrow of Connecticut-based Faros Trading.

The U.S. stock market seemed to agree with Dorrow's assessment as the S&P 500 surged 4.74 percent on Tuesday, fueled by a late afternoon buying binge that was sparked by the Fed statement released at 2:15 p.m. ET.

The Fed broke precedence by promising to leave rates low until at least mid-2013. This move gave some on the fence investors enough assurance put their cash into risk assets. The mid-2013 date is also longer than what some concerned investors expected.

The Fed also commented that it expects inflation to be "at or below those consistent with the Committee's dual mandate." This opens the door for it to signal QE3 in future FOMC statements.

Recall that in September 2010, the signal the Fed gave for QE2 was that inflation was "somewhat below" what it deemed appropriate. In the November 2010, the justification the Fed gave for officially announcing QE2 was to "help ensure that inflation...is at levels consistent with" what it deems appropriate.

Finally, the Tuesday FOMC statement said the Fed "discussed the range of policy tools available to promote a stronger economic recovery" and is "prepared to employ these tools as appropriate."

Dorrow read the above phrases as "opening the door for QE3 and/or other measures as needed to offset the tightening of financial conditions caused by market sell-offs."