Statues adorn the facade of the New York Stock Exchange, Tuesday, Sept. 13, 2022, in New York. (AP Photo/Julia Nikhinson)
NEW YORK (AP) – Stocks are rising and yields are sinking after the Federal Reserve indicated it may cut interest rates several times next year. The S&P 500 was 0.5% higher immediately after the release of projections showing the median Fed official expects the federal funds rate to be roughly a percentage point lower at the end of 2024 than it is now. That’s not as many rate cuts as Wall Street had been expecting, but it’s more than Fed officials were earlier forecasting. The Dow rose 170 points, and the Nasdaq composite gained 0.5%, up from nearly flat before the announcement. The 10-year Treasury yield tumbled.
THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.
NEW YORK (AP) – Wall Street is drifting near its all-time high Wednesday, ahead of an afternoon announcement from the Federal Reserve that could show whether all the optimism is warranted.
The S&P 500 was virtually unchanged in afternoon trading and roughly 3% below its record set early last year. The Dow Jones Industrial Average was up 1 point, or less than 0.1%, as of 1:40 p.m. Eastern time, and the Nasdaq composite was 0.1% lower.
Vertex Pharmaceuticals jumped 11.5% for one of the biggest gains in the S&P 500 after it reported encouraging data from a study for a potential pain treatment for patients with diabetic peripheral neuropathy.
That helped offset an 8% loss for Pfizer, which gave a revenue forecast for 2024 that was weaker than analysts expected. Much of the shortfall was due to expectations for its COVID-19 vaccine and treatment.
Tesla dropped 2.5% after recalling more than 2 million vehicles across its model lineup to fix a defective system that’s supposed to ensure drivers are paying attention when they use Autopilot.
But the main event for Wall Street is the Federal Reserve’s announcement later this afternoon. The widespread expectation is for the Fed to say it’s keeping its main interest rate steady. What may be more impactful is an accompanying set of projections, which will show where policy makers believe they may take interest rates in upcoming years.
The Fed has already yanked its main interest rate from nearly zero to more than 5.25%, its highest level since 2001, in hopes of slowing the economy and hurting investment prices by just the right amount: enough to snuff out high inflation but not so much that it causes a painful recession.
With inflation down sharply from its peak two summers ago and the economy still solid despite high interest rates, hopes have been rising that the Fed can pull off that perfect landing. Traders have built up expectations that the Fed could even begin cutting interest rates in the first half of 2024.
The slight majority of bets are calling for the Fed to cut its main interest rate by at least 1.25 percentage points through the year, according to data from CME Group.
Some economists and investors expect Fed Chair Jerome Powell to use his press conference this afternoon to push against such hopes. He’s already said recently that it’s too early to consider when cuts to rates can come.
Wall Street wants cuts to rates and has already pushed up prices in anticipation of them because they can act like steroids for financial markets and help relax pressure on the economy and the financial system. Earlier this year, high interest rates helped lead to several high-profile collapses in the U.S. banking system.
In the bond market, the yield on the 10-year Treasury fell to 4.16% from 4.21% late Tuesday. The two-year yield, which moves more on expectations for the Fed, dropped to 4.66% from 4.73%.
They both sank after a report showed that prices at the wholesale level were just 0.9% higher in November than a year earlier. That was softer than economists expected and the second-lowest such reading since inflation began exploding in early 2021.
On Wall Street, Southwest Airlines lost 6.4% after it raised its forecast for how much it will spend on fuel costs during the end of 2023.
In stock markets abroad, indexes were mixed in Europe and Asia.
Japan’s Nikkei 225 rose 0.3% after a report from the Bank of Japan showed business sentiment among major manufacturers improved.
Stocks fell more sharply elsewhere in Asia, including a 1.2% drop in Shanghai and a 0.9% decline in Hong Kong, as worries continue about the strength of China’s economy, the world’s second-largest.
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AP Business Writers Matt Ott and Elaine Kurtenbach contributed.
