The Dow Jones Industrial Average hit a record high after the Federal Reserve news

NEW YORK (AP) — A strong rally on Wall Street sent the Dow Jones Industrial Average to a record high Wednesday The Federal Reserve noted The interest rate cuts that investors crave could come next year.

The Dow Jones index jumped 512 points, or 1.4%, to reach 37,000 points and exceed its previous peak of 36,799.65 points, which it recorded at the beginning of last year.

Other US stock indices also jumped broadly. The S&P 500 rose 1.4% and is within 2% of its record. The Nasdaq Composite Index also rose by 1.4%.

Wall Street likes low interest rates because they can relieve pressure on the economy and raise prices for all types of investments. Markets have been rising since October amid growing hopes that cuts may be on the way.

Interest rate cuts particularly help investments that are seen as more expensive, of lower quality, or force investors to wait longer for significant growth. Among the biggest winners on Wednesday were bitcoin, which rose nearly 4%, and the Russell 2000 index of US small-cap stocks, which jumped 3.5%.

Apple was the strongest force pushing the S&P 500 higher, rising 1.7% to its record closing high. They and other big tech stocks have been among the biggest reasons the S&P 500 has risen 22.6% this year.

All this excitement came when the Fed kept its key interest rate steady at a range of 5.25% to 5.50%, as was widely expected. He raised that rate from almost zero early last year in hopes of slowing the economy and hurting investment prices by just the right amount: enough to eliminate high inflation but not enough to cause a painful recession.

With inflation down sharply from its peak two summers ago, and the economy remaining strong despite high interest rates, hopes have risen that the Fed can achieve this ideal landing. In a press conference on Wednesday, Federal Reserve Chairman Jerome Powell said the key interest rate was likely already at or near its peak.

While acknowledging that inflation is still very high and that the battle against it is not over yet, Powell said that Fed officials do not want to wait long before cutting the federal funds rate, which has reached its highest level since 2001.

“We recognize the risk that we may be holding on for too long” before cutting interest rates, he added. “We know this is a risk, and we are very focused on not making this mistake.”

That’s why Wall Street’s focus was squarely on the Fed’s forecast showing where policymakers see the federal funds rate going in 2024. It showed the average official expecting it to hit roughly 4.6%.

While that means a less severe cut than many Wall Street traders expected, it is more than the Fed official expected three months ago.

After the forecast was released, Wall Street traders raised their bets for a rate cut in 2024. The majority of bets now expect the federal funds rate to end next year in a range of 3.75% to 4% or lower, according to data from CME Group.

Treasury yields in the bond market fell due to such bets. The yield on the 10-year Treasury note fell to 4.01% from 4.21% late Tuesday. It was above 5% in October, its highest level since 2007. The two-year yield, which moves more in line with the Fed’s own projections, fell to 4.43% from 4.73%.

Both had already descended earlier in the morning, after a report surfaced Prices are at wholesale level It was only 0.9% higher in November than a year earlier. This was lighter than economists expected.

However, such a decline in yields and a rise in stocks could threaten to undo the future that investors rely on, according to the most cautious investors.

Lower yields in the bond market make it easier for American households to obtain cheaper mortgages, and also easier for American companies to borrow money to expand. On the other hand, higher stock prices give families that own stocks more wealth. All of this could put upward pressure on inflation, which could eventually force the Fed to raise interest rates again, warned Samir Samana, chief global market strategist at the Wells Fargo Investment Institute.

He also said the Fed is unlikely to cut interest rates as many times as traders expect in 2024 unless there is a recession. The US economy is expected to slide into a moderate recession early next year.

“We believe it will take a recession to treat the late stage of inflation” and ensure it falls to the Fed’s 2% target, Samana said.

On Wall Street, Vertex Pharmaceuticals shares jumped 13.2% to achieve the largest gains in the S&P 500 index after it announced encouraging data from a study of a potential treatment for pain for patients suffering from peripheral neuropathy resulting from diabetes.

This helped offset Pfizer’s loss of 6.7%. He gave revenue forecasts for 2024 This was weaker than analysts expected. Much of the shortage is due to expectations regarding the COVID-19 vaccine and treatment.

Southwest Airlines shares lost 3.8% after it raised its expectations for the extent of its spending on fuel costs during the end of 2023.

Overall, the S&P 500 rose 63.39 points to 4,707.09. The Dow added 512.30 to 37,090.24, and the Nasdaq rose 200.57 to 14,733.96.

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AP Business Writer Matt Ott contributed.