The Federal Reserve decided to keep interest rates steady on Wednesday but signaled that two rate cuts are still possible later this year. The central bank’s decision was widely expected by investors. In a press conference following the announcement, Fed Chair Jerome Powell noted that the economy remains strong overall.
“Labor market conditions are solid, and inflation has moved closer to our 2% longer-run goal, though it remains somewhat elevated,” he said. However, Powell also acknowledged that there is increased uncertainty around the economic outlook. This uncertainty is partly due to escalating trade tensions between the U.S. and major trading partners like Canada, Mexico, and China.
Investors reacted positively to the Fed’s decision and Powell’s comments. The Dow Jones Industrial Average climbed nearly 400 points, or 0.92%, to close at 41,964.63. The S&P 500 and Nasdaq Composite also posted gains of over 1%.
Fed decision boosts US stocks
“This information was almost exactly what people had expected,” said Michael Green, Chief Strategist at Simplify Asset Management. He noted that weaker-than-expected inflation over the past two summers suggests there may be seasonal factors that are not being fully accounted for.
Cyclical sectors like financials, industrials, and energy saw particularly strong gains following the Fed announcement. This may be due to Powell’s positive assessment of the overall U.S. economy. However, some economists are worried about the potential for stagflation, where economic growth slows but inflation remains high.
“As growth prospects falter and inflation remains sticky, investors might get more worried about stagflation,” said LPL Chief Economist Jeffrey Roach. In other market news, shares of liquefied natural gas producer Venture Global rose nearly 2% after the company received approval from the Department of Energy to export LNG from its terminal in Louisiana. Boeing, Nvidia, and Autodesk were also among the notable movers during midday trading.
Looking ahead, investors will be closely watching economic data and future Fed announcements for clues about the direction of interest rates and the broader economy. But for now, the market appears to be taking the Fed’s latest decision in stride.
