Stocks rallied on Wednesday after the Federal Reserve kept rates unchanged as widely expected, and the central bank and investors continue to gauge how President Trump’s tariff policies affect the economy and inflation.
Stocks extended gains further as Fed Chair Jerome Powell spoke, saying it was too early to determine whether to look through the impact US tariffs would have on inflation, and difficult to assess how much of any price increases are attributable to the levies.
The Dow Jones Industrial Average jumped nearly 600 points before closing up 383.32 points, or 0.9%, at 41,964. The S&P 500 gained 1.1%, and the Nasdaq climbed 246 points, or 1.1%.
The central bank kept its benchmark overnight interest rate unchanged in the 4.25%-4.50% range, and indicated that two quarter-point interest-rate cuts were likely later this year, the same median forecast as three months ago. The Fed also forecast slower economic growth and higher inflation.
Policymakers disagreed about the path forward, pointing to uncertainty among members about how to handle the effects of Trump’s plans.
The Fed also said it would reduce the pace of the drawdown of its still-massive balance sheet, as it faces challenges in assessing market liquidity during an ongoing impasse in Congress over lifting the government’s borrowing limit.
“Given growing worries around tariffs and how they could affect US growth and inflation,” Matthias Scheiber, head of the multi-asset solutions team at Allspring Global Investments in London said the Fed “took a widely expected ‘wait and see’ approach on rates.”
Scheiber added: “For 2025, the interest rate market currently expects the Fed will cut rates to around 3.75% by year-end. A lot will depend on how the inflation-versus-growth trade-off develops—growth may continue weakening, and the Fed may need to cut rates more forcefully than expected.”
Traders still see the Fed lowering borrowing costs by at least two 25-basis point cuts by December, with a 62.2% chance for a cut of at least 25 basis points in June, according to data compiled by LSEG.
“The market was primarily looking for anything that reduced the uncertainty, and I think simply that Powell was kind of maintaining the outlook there,” said Russell Price, chief economist at Ameriprise Financial in Troy, Michigan.
“Inflation expectations went up just a little bit, and their GDP numbers came down just a little bit, so the market’s taking it as the Fed did not add to the overall uncertainty background that is currently pressuring stocks.”
The European Union will tighten steel import quotas to reduce inflows by a further 15% from April, a senior EU official said, in a move aimed at preventing cheap steel from flooding the European market after Washington imposed new tariffs.
Boeing shares jumped 6.8% after the aircraft maker said it does not see a near-term impact from tariffs.
Analysts have said markets are largely eyeing Trump’s announcements regarding reciprocal trade barriers on April 2.
Stocks have come under selling pressure in recent weeks after a string of economic indicators signaled the economy and consumer sentiment may be cooling as trade policy concerns grow. Still, equities have shown signs of bottoming by registering gains in three of the past four sessions.
Multiple companies have also lowered their profit outlooks, the latest being General Mills. The Pillsbury owner lowered its annual sales outlook, sending its shares 2% lower.
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