The stock market rose to the edge of its record on Wednesday after the Federal Reserve cut its main interest rate to bolster the job market, and hopes strengthened for more cuts to come in 2026.
The S&P 500 climbed 0.7% and finished just shy of its all-time high, which was set in October. The Dow Jones Industrial Average jumped 497 points, or 1%, and the Nasdaq composite rose 0.3%.
Wall Street loves lower interest rates because they can boost the economy and send prices for investments higher, even if they potentially make inflation worse.
Wednesday’s cut to interest rates was widely expected and did not move markets much by itself. But some investors found encouragement from comments by Fed Chair Jerome Powell, which they said were less forceful about shutting down the possibility of future cuts than they had been anticipating.
Powell said again on Wednesday that the central bank is in a difficult spot, because the job market is facing downward pressure when inflation is simultaneously facing upward pressure. By trying to fix one of those problems with interest rates, the Fed usually worsens the other in the short term.
Powell also said for the first time in this rate-cutting campaign that interest rates are back in a place where they’re pushing neither inflation nor the job market higher or lower. That gives the Fed time to hold and reassess what to do next with interest rates as more data comes in on the job market and on inflation.
“We are well positioned to wait and see how the economy evolves,” Powell said.
But he also said no one at the Fed is expecting a hike to interest rates in their “base case” anytime soon, and he spent much of his discussion in a press conference following the rate announcement talking about the job market.
After voting on Wednesday’s cut, Fed officials released projections for where they see the federal funds rate potentially ending 2026. The median member is penciling in one more cut by the end of next year, the same as three months earlier.
That projection is under the microscope because Fed officials had seemed unusually split about how much more help the economy may need from lower interest rates. With inflation stubbornly above the Fed’s 2% target, some officials had been saying it was the bigger threat for the economy rather than the job market.
In Wednesday’s vote, two Fed officials voted against the cut of a quarter percentage point because they did not want to reduce rates now. A third official, meanwhile, voted against Wednesday’s cut because he wanted a deeper reduction of half a percentage point.
In the bond market, Treasury yields eased as hopes rose for additional cuts to interest rates in 2026.
Traders are now betting on a 71% chance that the Fed will cut the federal funds rate at least twice next year. That’s up from the 64% chance seen shortly before the Fed announced its decision, according to data from CME Group.
The Fed also announced a program where it will buy shorter-term Treasurys to help keep the financial system running smoothly. It’s not a large-scale program like past efforts by the Fed to buy bonds to keep interest rates low and stimulate the economy, but it helps keep shorter-term rates lower than they otherwise would be.
The yield on the 10-year Treasury fell to 4.15% from 4.18% late Tuesday. The two-year yield fell more and sank to 3.53% from 3.61%.
On Wall Street, GE Vernova flew 15.6% higher after the energy company raised its forecast for revenue by 2028, doubled its dividend and increased its program to buy back its own stock.
Palantir Technologies added 3.3% after saying the U.S. Navy will use its artificial-intelligence platform as part of a $448 million program.
Cracker Barrel Old Country Store rose 3.5%. The restaurant chain caught up in a furor around its logo design reported better results for the latest quarter than analysts expected but also cut its forecast for revenue this fiscal year, as well as for an underlying measure of earnings.
On the losing end of Wall Street was GameStop, which fell 4.3% after reporting weaker revenue for the latest quarter than analysts expected. The video-game retailers’ profit topped forecasts, though.
All told, the S&P 500 rose 46.17 points to 6,886.68. The Dow Jones Industrial Average jumped 497.46 to 48,057.75, and the Nasdaq composite gained 77.67 to 23,654.16.
In stock markets abroad, indexes were mixed amid mostly modest movements across Europe and Asia.
Choe writes for the Associated Press.
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