NEW YORK — Stocks rallied to more records after the Federal Reserve indicated it’s still likely to deliver the cuts to interest rates this year that Wall Street craves. The S&P 500 rose 0.9% Wednesday. The Dow Jones Industrial Average gained 1%, and the Nasdaq composite jumped 1.3%. All three indexes hit all-time highs. The fear coming into the day was that the Fed would trim the number of expected rate cuts this year because of some hot inflation data, but it’s still penciling in three.
After surveying its policy makers, the Fed said the median still expects the central bank to deliver three cuts to interest rates in 2024. That’s the same number as they had penciled in three months earlier, and expectations for the relief that such cuts would provide are a big reason U.S. stock prices have set records.
Powell said again that the Fed's next move is likely to be a cut sometime this year but that it needs additional confirmation inflation is moving sustainably down towards its target of 2%. It has little room for error. Cutting rates too early risks allowing inflation to reaccelerate, but cutting rates too late could lead to widespread job losses and recession.
“They probably figure they don’t need to cause a recession to tame inflation, and that’s a good thing,” said Brian Jacobsen, chief economist at Annex Wealth Management.The two-year Treasury yield, which closely tracks expectations for Fed action, initially jumped before quickly giving up the gain. It was recently at 4.61%, down from 4.69% late Tuesday, as traders built bets for the Federal Reserve to begin cutting rates in June.