At 1pm AEDT on Thursday, the benchmark S&P/ASX200 index was up 113.3 points, or 1.56 per cent, to 7,371.1, its best level since August 2.
The broader All Ordinaries was up 121.1 points, or 1.62 per cent, to 7,590.2.
"The market has been looking for a dovish pivot from the Fed, and today it got that," JP Morgan economists wrote in a client note.
The Fed's statement eased back its language on further hikes, and its "dot plot" projections suggested more cuts in the coming years, the economists said.
Chairman Jerome Powell stressed progress on inflation and labour market balance, they wrote.
The US dollar dropped against other currencies, including the Australian dollar, following the Fed's announcement.
The Aussie then rose further against the greenback after a mixed Australian labour market readout shortly before noon, climbing over 67 US cents for the first time since August 1.
In the readout, the Australian Bureau of Statistics announced that the unemployment rate rose to 3.9 per cent in November, up from a revised 3.8 per cent in October. But the economy also added 61,500 jobs in November, smashing expectations for 11,500 new roles.
"There are now firmer signs that the labour market is cooling," said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia. The unemployment rate has increased by 0.4 percentage points since June, while average hours have trended lower.
Betashares chief economist David Bassanese said the report was fairly neutral for the Reserve Bank, which would likely be more influenced by the December quarter inflation report in late January.
Every sector of the ASX was in the green at midday, with the interest-rate-sensitive property sector the biggest gainer, soaring 4.2 per cent.
Westfield owner Scentre Group was up 4.1 per cent, property developer Charter Hall had soared 10.2 per cent and Vicinity Centres had gained 4.3 per cent.
The heavyweight mining sector was up 2.3 per cent, with BHP rising 1.0 per cent, Fortescue adding 1.6 per cent and Rio Tinto rising 1.2 per cent.
Goldminers were shining as the price of the precious metal climbed from $US1,980 an ounce to more than $US2,032 on the Fed's pivot.
Northern Star had added 6.9 per cent to a five-month high of $13.035 and Evolution had gained 4.1 per cent to a one-week high of $3.705.
Lithium miners were also having stellar day, with Pilbara Minerals up 8.9 per cent to $3.80 and Allkem up 9.6 per cent to $10.03.
All the Big Four banks were up, with ANZ ahead by 0.9 per cent, CBA adding 0.8 per cent, Westpac rising 0.7 per cent and NAB up by 0.6 per cent.
Insurance companies, whose bottom lines are generally hurt by lower interest rates, were among a small group of companies in the red at midday.
IAG was down 2.4 per cent, Suncorp had dropped 1.9 per cent and QBE had fallen 3.9 per cent.
Computershare, which is in the same boat as a company negatively affected by lower rates, was down 0.8 per cent.
Kiwi breast cancer detection company Volpara Health Technologies was up 41.3 per cent to $1.095 after agreeing to be acquired by South Korean medical software company Lunit for $1.15 a share, or $295.7 million.
The Australian dollar was buying 67.13 US cents, from 65.58 US cents at Tuesday's ASX close.
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