On Wednesday, U.S. stocks closed higher following comments from Federal Reserve Chair Jerome Powell and reaffirmation of rate cut guidance by the central bank. The Dow Jones Industrial Average climbed 401.37 points to 39,512.13, reaching a new record high. The S&P 500 rose by 46.11 points to 5,224.62, while the Nasdaq Composite Index experienced a 202.62 point increase to 16,369.41.
At the conclusion of their meeting, the Federal Reserve decided to keep the benchmark interest rate unchanged at 5.25 percent to 5.5 percent. This decision was widely anticipated and marks the highest borrowing costs in over two decades. The Fed also indicated expectations for three rate cuts in 2024, consistent with their previous forecast from December.
“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the Fed stated.
Powell reiterated the Fed’s intention to lower rates during the year if economic growth remains on track. “We believe that our policy rate is likely at its peak for this type of cycle, and that if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year.”
Some investors were initially concerned that recent inflation reports could result in fewer rate cuts than anticipated. Key indicators such as the consumer price index and personal consumption expenditures showed increases in January and February.
Powell noted that inflation is following a non-linear downward trajectory. “I think they haven’t really changed the overall story, which is that of inflation moving down gradually on a sometimes bumpy road toward 2 percent,” he remarked during a press conference.
“We’re not going to overreact to these two months of data, nor are we going to ignore them,” Powell stressed. He also emphasized that a strong labor market wouldn’t prevent interest rate reductions.
Powell’s stance on inflation and the Fed’s commitment to three rate cuts this year were praised by experts like David Russell, TradeStation’s global head of market strategy. The expectation of interest rate cuts was welcomed by investors.
“Jerome Powell is holding steady despite some inflation bumps this year. Investors are reassured by the presence of three rate cuts in the forecast, supporting market sentiment and risk appetite,” Russell commented. “The Fed may face consequences later, but for now, the stimulus remains.”
Portfolio manager Bryce Doty from Sit Investment Associates noted that the market reacted positively to the reassurance of potential rate cuts. Concerns over the Fed deviating from its rate cut plans were alleviated, leading to higher stock prices and lower bond yields.
