Dow hits record high as investors cheer Fed rate outlook

The Dow Jones Industrial Average rose to close more than 37,000 points for the first time as investors on Wednesday welcomed a statement by the Federal Reserve that it could cut the benchmark interest rate next year.

The blue-chip index jumped 512 points, or 1.4%, to end the day at 37,090, topping its previous high of 36,799 in early 2023. The broader S&P 500 rose 1.4% and is within 1.9% of its own record. The technology-heavy Nasdaq composite added 1.4 per cent.

Fed officials also left short-term interest rates unchanged for a third straight meeting amid signs that their aggressive push to tame inflation is working. With the price hikes that hit Americans during the pandemic now coming back in earnest, Fed Chairman Jerome Powell said at a press conference that the federal funds rate is expected to fall to 4.6% by the end of next year, from its current range of 5.25% to 5.5%.

“The Fed decision was more dovish than expected on a number of fronts, including the acknowledgment that growth and inflation have both cooled, the strong signals that rate hikes have ended, and Powell’s admission during the press conference that “rates are at or close to their peak,” analyst Adam Crisafulli of Vital Knowledge said in a report.

Lower interest rates limit borrowing costs for consumers and businesses, boosting spending and broader economic growth. Interest rate cuts also tend to boost riskier assets, including stocks. Markets have rallied steadily since October, when Wall Street bet the Fed — which raised interest rates 11 times during the latest tightening cycle to their highest level in 22 years — will pivot to cuts in 2024.

While noting that the Fed is not ready to declare victory over inflation, Powell also said that Fed officials do not want to wait too long before lowering the federal funds rate.

“We are aware of the risk that we would hold on too long” before cutting rates, he said. “We know it’s a risk and we’re very focused on not making that mistake.”

Inflation remains stable in the latest consumer price index report


Overall inflation around the US dropped in November when gas prices fell. The consumer price index rose 0.1% last month, leaving it 3.1% higher than a year ago, the Labor Department said reported on Tuesday. The so-called core CPI, which excludes volatile food and energy costs, rose 0.3% after rising 0.2% in October and is up 4% from a year ago. The Fed aims for annual inflation of 2 per cent.

Following the release of the Fed’s rate forecasts, Wall Street traders increased their bets on cuts in 2024. Most of those bets now expect the federal funds rate to end next year in a range of 3.75% to 4%, according to data from CME Group.

“We see modest upside for US equities from current levels,” David Lefkowitz, CIO head of equities at UBS, told investors in a research note. “Both sentiment and positioning have improved, posing greater downside risks if there are negative economic or earnings surprises.”

— The Associated Press contributed to this report.

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