NEW YORK, March 20 (Xinhua) — U.S. stocks ended higher on Wednesday, after the Federal Reserve reiterated rate cut guidance and Fed Chair Jerome Powell’s dovish comments.
The Dow Jones Industrial Average rose 401.37 points, or 1.03 percent, to 39,512.13, hitting a record high. The S&P 500 added 46.11 points, or 0.89 percent, to 5,224.62. The Nasdaq Composite Index increased 202.62 points, or 1.25 percent, to 16,369.41.
At the conclusion of their two-day meeting on Wednesday, central bankers opted to maintain the benchmark interest rate at a range of 5.25 percent to 5.5 percent. This decision was widely anticipated and keeps borrowing expenses at their highest level in about 23 years. Additionally, officials presented forecasts indicating three rate reductions expected to occur in 2024, aligning with their previous outlook 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 said in a statement.
Moreover, Powell reiterated on Wednesday that policymakers still intend to cut rates before the end of this year, assuming economic growth continues. “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.”
Before the meeting, certain investors were concerned that a series of recent high inflation reports might lead to even fewer interest rate cuts than what the markets were expecting, as major indicators of inflation, including the consumer price index and personal consumption expenditures, increased in both January and February.
According to Powell, this data supports the view that inflation is following a non-linear downward trend. “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 said during a press conference on Wednesday afternoon.
“We’re not going to overreact to these two months of data, nor are we going to ignore them,” said Powell. He also pointed out that continued strength in the labor market wouldn’t be a reason to hold off lowering interest rates.
Powell and the central bank are standing firm in response to persistent inflation, as noted by David Russell, TradeStation’s global head of market strategy. Russell also mentioned that the ongoing expectation of three interest rate cuts this year is viewed positively.
“We had some inflation bumps this year but Jerome Powell’s not blinking. Investors are relieved to see three cuts stay in the dot plot, supporting markets and risk appetite,” Russell said. “The Fed might wake up with a hangover, but the punchbowl isn’t going away yet.”
“The immediate market reaction is the relief we were expecting. Investors were worrying the Fed was going to pull back from rate cuts this year, so keeping three rate cuts on the table naturally pushes stocks higher and bonds yields lower,” said Bryce Doty, a portfolio manager at Sit Investment Associates.
Source Agencies
