Wall Street moves higher as Federal Reserve still sees 3 cuts to rates this year

US stocks are moving higher Wednesday after the Federal Reserve indicated it’s still likely to deliver the cuts to interest rates this year that Wall Street craves, even though concerns are growing about stubbornly high inflation.

The S&P 500 rose 0.5% in afternoon trading after flipping between tiny gains and losses before the Fed’s announcement. The Dow Jones Industrial Average was up 221 points, or 0.6%, as of 2:45 p.m. Eastern time, and the Nasdaq composite was 0.6% higher.

After surveying its policymakers, 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 pencilled in three months earlier, and expectations for the relief such cuts would provide are a big reason U.S. stock prices have set records recently.

The fear on Wall Street was that the Fed would trim the number of forecasted cuts because of a string of recent reports that showed inflation remaining hotter than expected. To grind down inflation, the Fed has been keeping its main interest rate at its highest level since 2001.

High rates slow the overall economy by making borrowing more expensive and by hurting prices for investments. Those fears didn’t come to fruition, but the Fed also indicated it may end up keeping its main interest rate higher in 2025 and 2026 than it earlier indicated.

Part of that may be because of how resilient the US economy has been even with rates at high levels. It began hiking its main interest rate from virtually zero roughly two years ago to its current range of 5.25% to 5.50%.

Fed officials upgraded their forecasts for the US economy’s growth this year, and continued strength could translate into higher profits for companies, which in turn would help their stock prices.

“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 Fed is getting a little less confident about where we are or even where we’re going, so they will likely take their cues from the markets as to whether they’re doing a good job or not." In the bond market, Treasury yields had a mixed reaction.

The two-year Treasury yield, which closely tracks expectations for Fed action, initially jumped before quickly giving up the gain. It was recently at 4.63%, down from 4.69% late Tuesday.

The yield on the 10-year Treasury, which also takes into account longer-term economic growth and inflation, initially tumbled after the Fed’s announcement but then rose. It was recently at 4.29%, compared with 4.30% late Tuesday.

On Wall Street, Mexican food chain Chipotle rose 3.6% after announcing its first stock split in history, a move that would lower the price of each share and make it accessible to more investors.

Markets in Europe and Asia were mixed. Japan’s markets were closed for a holiday a day after the Bank of Japan hiked its benchmark interest rate for the first time in 17 years, raising the rate to a range of zero to 0.1% from minus 0.1%.

The FTSE 100 in London was virtually flat after British inflation in February came in below expectations at 3.4%, marking its lowest level since September 2021. That supports hope for rate cuts in the coming months.