Stocks rose to record levels on Wednesday after the Federal Reserve cut its key interest rate to support the job market, fueling expectations for further rate cuts in 2026.
The S&P 500 rose 0.7%, finishing just shy of its all-time high set in October. The Dow Jones Industrial Average rose 497 points, or 1%, and the Nasdaq Composite Index rose 0.3%.
Wall Street likes low interest rates because they can stimulate the economy and drive up investment prices, even if they can worsen inflation.
Wednesday’s rate cut was widely expected and did not move the market much on its own. But some investors were encouraged by comments from Federal Reserve Chairman Jerome Powell, who said it was not as strong as expected in containing the possibility of future rate cuts.
Chairman Powell reiterated Wednesday that the central bank is in a difficult situation as inflation faces upward pressure at the same time as the job market faces downward pressure. When the Fed tries to solve one of these problems with interest rates, it typically ends up making the other worse in the short term.
Powell also said that for the first time in the current rate-cutting campaign, interest rates are back to a level where neither inflation nor the job market is moving up or down. This gives the Fed time to hold interest rates and reconsider what to do next as more data on the job market and inflation comes in.
“We are in a position to wait and see how the economy develops,” Powell said.
But he also said that no one at the Fed expects a “baseline” rate hike anytime soon, and he spent much of the press conference after announcing the rate hike talking about the job market.
After Wednesday’s vote to cut rates, Fed officials announced that they expect the federal funds rate could end in 2026. The median member expects one more rate cut by the end of next year, the same as three months ago.
The forecast has been under the microscope as Fed officials appeared unusually divided on how much further support the economy would need from lower interest rates. Inflation remains above the Fed’s 2% target, which some officials have argued is a bigger threat to the economy rather than the job market.
In Wednesday’s vote, two Fed officials voted against cutting interest rates by a quarter of a percentage point because they didn’t want to do so now. Meanwhile, a third official voted against Wednesday’s cuts because he wanted a bigger cut of 0.5 percentage points.
In the bond market, expectations for further interest rate cuts in 2026 rose, and U.S. bond yields fell.
Traders now expect a 71% chance that the Fed will cut the federal funds rate at least twice next year. That probability is up from the 64% chance seen just before the Fed announced its decision, according to CME Group data.
The Fed also announced a program to buy short-term Treasury bills to keep the financial system running smoothly. It’s not a massive program like the Fed’s past efforts to buy bonds to keep interest rates low and stimulate the economy, but it does help keep short-term interest rates lower than normal.
The yield on the 10-year U.S. Treasury note fell to 4.15% from 4.18% late Tuesday. The two-year bond yield fell further, falling from 3.61% to 3.53%.
On Wall Street, energy company GE Vernova rose 15.6% after it raised its earnings forecast through 2028, doubled its dividend and expanded its share buyback program.
Palantir Technologies rose 3.3% after the U.S. Navy announced it would use its artificial intelligence platform as part of a $448 million program.
Cracker Barrel Old Country Store rose 3.5%. The restaurant chain embroiled in a controversy over its logo design reported results for its latest quarter that beat analysts’ expectations, but also cut its forecasts for underlying sales and earnings metrics for the current fiscal year.
Among the losers on Wall Street was GameStop, which fell 4.3% after reporting lower-than-analyst-expected earnings for its latest quarter. However, the video game retailer’s profits exceeded expectations.
Overall, the S&P 500 rose 46.17 points to 6,886.68. The Dow Jones Industrial Average rose $497.46 to $48,057.75, and the Nasdaq Composite Index rose $77.67 to $23,654.16.
In overseas stock markets, indexes were mixed, with mostly calm movements across Europe and Asia.
Cho writes for The Associated Press.
