The S&P 500 experienced gains on Wednesday following the Federal Reserve’s decision to cut interest rates by a quarter of a percentage point. This move, which aligned with market expectations, was accompanied by signals from the Fed suggesting a likely pause in further reductions to borrowing costs. The rate cut decision was reached through a divided vote, with the central bank indicating it would monitor upcoming signals regarding the job market and inflation, noting that inflation remains somewhat elevated.
Despite the divided vote, projections released after the Fed’s two-day meeting largely mirrored those from September, with median expectations for another quarter-percentage-point cut in 2026. Policymakers also revised their GDP growth expectations for 2026 upwards to 2.3 per cent from the previous 1.8 per cent in September. The unemployment estimate for the end of next year remained steady at 4.4 per cent.
The market had remained relatively muted in anticipation of the statement, with traders closely watching Fed Chair Jerome Powell’s press conference. Investors were looking for clues about his expectations for future meetings, as the central bank grapples with elevated inflation and some weakening signals from the labour market. Following the statement, market data indicated a 78 per cent probability that the Fed would maintain stable rates in January, according to data from LSEG.
Mona Mahajan, head of investment strategy at Edward Jones in New York, noted that markets tend to react positively when the Fed cuts rates in an environment where the economy isn’t headed for an imminent downturn or recession. As of 2.22pm local time, the Dow rose 291.17 points, or 0.6 per cent, to 47,851.46, the S&P 500 gained 18.32 points, or 0.3 per cent, to 6858.83 while the Nasdaq lost 14.20 points, or 0.1 per cent, to 23,562.29.
