Wall Street indices eke out gains as recovery continues after Fed's rate cut hopes

The Fed kept interest rates unchanged at its latest March meeting.

Wall Street indices held on to their initial gains as of mid-trade on March 20 amid hopes that concerns over the fate of the US economy are overblown. In addition, the data from the Fed's latest 'dot-plot' also confirmed that policymakers continue to expect two more rate cuts in 2025, further bolstering sentiment.

The S&P 500 and tech-heavy Nasdaq Composite were up 0.2 percent while the Dow Jones Industrial Average edged up 0.4 percent.

This comes after the recent slew of macroeconomic data suggested that the world's largest economy still stands on a largely stable ground. The National Association of Realtors reported that sales of previously owned homes in February rose by 4.2 percent from January, sharply ahead of expectations of a 3 percent decline. Additionally, jobless claims also saw only a slight uptick last week, while layoffs remained low. These positive indicators reassured investors that economic conditions might not be as fragile as feared.

The data release followed comments from Fed Chair Jerome Powell, who also reaffirmed that the economy remains “strong overall” and that monetary policy is well-positioned to respond to any signs of weakness.

Meanwhile, the Federal Reserve’s commitment to two more rate cuts in 2025 provided further relief to investors concerned about the policy outlook. On Wednesday, the Fed kept interest rates unchanged at 4.25 percent to 4.5 percent, citing growing ‘uncertainty’ around the economic outlook. However, it did flag inflationary risks, particularly in light of former President Trump’s tariff plans.

In response, the rate-setting panel raised its median core inflation estimate to 2.8 percent from 2.5 percent by the end of the year. Economic growth projections for 2025 were lowered to 1.7 percent from the previous 2.1 percent forecast, while the unemployment rate projection was slightly revised upwards to 4.4 percent from 4.3 percent in December.

Powell acknowledged that assessing the impact of tariffs on inflation remains challenging, but surveys suggest they are driving inflation expectations higher. He also noted that inflation has started to rise, partly due to the effects of tariffs.

Despite these concerns, policymakers maintained their forecast for two rate cuts in 2025. The latest projections showed that a slim majority of Fed officials still anticipate a total of half a percentage point in rate reductions this year, implying two quarter-point cuts, unchanged from their December forecast.