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Wall Street ends higher after the Fed's hold-steady decision

  • Wall Street closed modestly higher on Wednesday following the Fed's decision to hold rates where they are now.
  • The Fed left its key interest rate unchanged in a range of 2.25% to 2.5%, where it has been since December.
  • The broad S&P 500 index is within striking range of its all-time high, set on April 30.

U.S. stock indexes ended slightly higher on Wednesday, after the Federal Reserve reaffirmed that it's prepared to cut interest rates if needed to shield the economy from trade conflicts or other threats. As expected, the central bank's policymakers decided to leave the Fed's benchmark interest rate unchanged. Investors are betting on at least one interest rate cut this year, possibly as early as July.

Stock indexes wavered between small gains and losses ahead of the Fed announcement, then rose somewhat on the announcement and during Fed Chairman Jerome Powell's press conference. When it was all over, the trading day ended with minor gains for the three major U.S. indexes.

The Dow industrials added 0.15%, or 38 points, to finish at 26,504. The broad market S&P 500 added 0.3%, or 9 points, ending at 2,926. And the tech-heavy Nasdaq Composite tacked on 0.4%, or 33 points, to close at 7,987.

The bond market had a more pronounced reaction to the Fed's statement. The yield on the 10-year Treasury note briefly touched its lowest level since September 2017. It fell to 2.05% from 2.06% late Tuesday.

The Fed left its key interest rate, which influences many consumer and business loans, unchanged Wednesday in a range of 2.25% to 2.5%. That's where it has been since December.

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The central bank also said that because "uncertainties" have increased, it would "act as appropriate to sustain the expansion." That language echoed a remark that Chairman Jerome Powell made two weeks ago that analysts interpreted as a signal that rate cuts were on the way. The Fed also removed a reference to being "patient" about adjusting rates.

And the central bank now forecasts economic growth of 2.1% this year. That would be down sharply from the 2.9% rate in 2018.

June rebound

The market was coming off two days of gains that are driving a June rebound in stocks after a dismal sell-off in May. The broad S&P 500 index is within striking range of its all-time high, set on April 30.

Stocks opened the week higher and rallied on Tuesday after President Donald Trump said he plans to meet with China's president at the end of the month to discuss their ongoing trade war. The announcement injected some hope into a market that has been volatile because of concerns over the lingering trade dispute and its potential impact on economic growth.

The market has rallied in the past and then dipped again because of seemingly good news on trade talks that did not result in any concrete progress.

For at least one day -- thanks to the Fed -- most investors had something other than U.S.-China trade war developments to focus on. And they're mostly looking at what the Fed may do next now that it decided to do nothing today.

"Overshot their target"

"The Fed can no longer stand the pressure the yield curve is putting on them and it looks like they are finally ready to admit they overshot their target," said Chief Market Strategist Brett Ewing of First Franklin Financial Services in a statement. "We look for a rate cut in July and then for the Fed to step back for a few months and monitor trade issue resolution."

"In short, the statement and projections were dovish enough to encourage expectations for easing before too long, quite possibly as soon as next month's meeting," said Jim O'Sullivan, chief U.S. economist with HFE Economics, in a research note.

Amid all the uncertainty in Fed's outlook, the U.S. economy remains strong despite slower growth, said James Ragan, director of wealth management research at D.A. Davidson, in a research note. "Our feeling is that the consumer is in pretty good shape still, but business investment has started to slow," Ragan said.

The biggest issue looming over the market remains the U.S. trade war with China, but investors should continue stressing long-term plans while keeping their portfolios diverse enough to weather volatility in the market, Ragan said.

Said T. Rowe Price in its 2019 midyear outlook: "Heading into the second half of 2019, senior T. Rowe Price investment leaders remain cautiously positive in their outlooks about global economies and financial markets, but they warn that escalating trade disputes and populist politics in many regions have created notable downside risks."

It added that "The U.S. economy is in a 'muddle through' mode. While it is slowing, major imbalances that would suggest a recession is imminent or even likely are not on the horizon."