Stock market today: Wall Street rallies to records as Federal Reserve still sees rate cuts for 2024

NEW YORK (AP) — U.S. stocks hit records Wednesday after the Federal Reserve indicated The interest rate cuts that Wall Street longs for are likely to be achieved this year, despite some discouragingly high inflation reports.

The S&P 500 jumped 46.11 points, or 0.9%, to 5,224.62 and set an all-time high for the second day in a row. It's already up 9.5% so far this young year, which is a little better than the full-year average over the past two decades.

The Dow Jones Industrial Average jumped 401.37 points, or 1%, to 39,512.13, and the Nasdaq composite rose 202.62 points, or 1.3%, to 16,369.41. Both also broke records.

Some of Wall Street's jitters at the start of the day disappeared after the Federal Reserve released a survey of its policymakers, which showed that the median still expects the central bank to deliver three interest rate cuts in 2024. That's the same figure they had anticipated. three months earlier, and expectations about the relief such cuts would provide are one of the main reasons US stock prices have set records.

The fear on Wall Street was that the Federal Reserve could reduce the number of cuts planned due to a chain of recent reports that showed inflation remaining hotter than expected. The Federal Reserve has been keeping its main interest rate at its highest level since 2001 to reduce inflation. High rates slow down the overall economy by making borrowing more expensive and hurting investment prices.

Federal Reserve Chair Jerome Powell said he had noted the past two months' worse-than-expected reports, but they "haven't really changed the overall story, which is of inflation gradually declining on a path." sometimes bumpy towards 2%. That story has not changed.”

Powell again said the Fed's next move will likely be a cut sometime this year, but that it needs more confirmation that inflation is getting closer to its 2% target.

The Federal Reserve has a dangerously small margin of error. Cutting rates too soon risks allowing inflation to accelerate again, but cutting rates too late could lead to widespread job losses and a recession.

“I don't think we really know if this is a bump in the road or something else; We’ll have to find out,” Powell said of the January and February inflation data. "In the meantime, the economy is strong, the labor market is strong, inflation is down a lot, and that gives us the ability to approach this issue carefully."

Federal Reserve officials upgraded their forecasts for growth in the U.S. economy this year, while indicating they could end up keeping their main interest rate in 2025 and 2026 higher than previously thought.

"They probably think they don't need to cause a recession to control inflation, and that's a good thing," said Brian Jacobsen, chief economist at Annex Wealth Management.

In the bond market, Treasury yields had a mixed reaction.

The two-year Treasury yield, which closely tracks expectations for Fed action, initially jumped before quickly giving up the gain. It eventually fell back to 4.61%, down from 4.69% on Tuesday, when traders placed bets that the Federal Reserve would begin cutting rates in June.

Traders had already abandoned earlier hopes that the Federal Reserve would begin cutting rates in March. The concern is that if the Federal Reserve waits too long until the summer before lowering rates, it may not end up doing so all year. This is because of the risk of appearing political if he were to make big changes to his policies just before the US elections scheduled for November.

The yield on the 10-year Treasury bond, which also takes longer-term economic growth and inflation into account, initially fell after the Federal Reserve's announcement but then turned around. It later stood at 4.28%, down from 4.30% on Tuesday night.

On Wall Street, Mexican food chain Chipotle rose 3.5% after announcing its first stock split in history, a move that would lower the price of each share and make it accessible to more investors.

In foreign stock markets, European and Asian indices were mixed. The Japanese market was closed for a holiday a day after the Bank of Japan raised its reference interest rate for the first time in 17 years, raising the rate to a range of zero to 0.1% from minus 0.1%.

London's FTSE 100 was broadly flat after British inflation in February came in below expectations at 3.4%, its lowest level since September 2021. That supports hopes for rate cuts in the next months.

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Zimo Zhong contributed to this report.

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