US stocks rise, dollar retreats as Fed tone less hawkish than feared

Representative image

Wall Street stocks rose and the dollar retreated Wednesday after the Federal Reserve cut interest rates again as it seeks to shore up a vulnerable US labor market.

The rate cut was expected, but stocks had been under pressure in recent days in part due to speculation that the Fed would combine Wednesday's interest rate cut with commentary suggesting a pause to further easing in light of still-elevated inflation.

But market watchers read Fed Chair Jerome Powell's emphasis on the job market during a press conference as a signal that the Fed could cut interest rates again in 2026.

Powell's "press conference today was less hawkish than a lot of investors had anticipated," said CFRA Research's Sam Stovall. "And I think that that will go a long way to propelling stocks through the end of the year and allowing us to end on a positive note."

"Powell did sound very supportive of cutting rates more if need be," Stovall said.

Stocks rose throughout the news conference, with the broad-based S&P 500 finishing up 0.7 percent. The dollar retreated against the euro and other major currencies.

Powell described the current countervailing pressures on the central bank as an unusual challenge, with the Fed's dual mandates on inflation and the job market pointing towards opposite policies.

The US central bank's third straight interest rate cut comes as inflation remains well above the Fed two-percent target. Recent US labor data has also shown some weakening, although the central bank has been forced to do without key economic reports due to the government shutdown.

"We're going to need to have some years where real compensation is higher" than inflation "for people to start feeling good about affordability," Powell said.

Wednesday's cut by a quarter percentage point brings rates to a range between 3.50 percent and 3.75 percent, the lowest in around three years, a move aligned with market expectations.

Three Fed officials dissented.

Chicago Fed president Austan Goolsbee and Kansas City Fed president Jeffrey Schmid instead sought to keep rates unchanged. Fed Governor Stephen Miran backed a bigger, half-percentage-point cut.

Earlier, London closed 0.1 percent in the green but Frankfurt and Paris were just off, while Asia saw a lackluster session.

After November's tech-led swoon, stock markets have enjoyed a healthy run in recent weeks as weak jobs figures reinforced expectations for another step lower in borrowing costs.

But that has cooled heading into the Fed gathering after the release of US inflation data that was slightly higher than expected.

The price of silver hit a record high at $61.9507 an ounce owing to high demand for the metal used by industry as well as for making jewelry.

It topped $60 for the first time Tuesday, also thanks to supply constraints.

- Key figures at around 2115 GMT -

New York - Dow: UP 1.1 percent at 48,057.75 (close)

New York - S&P 500: UP 0.7 percent at 6,886.68 (close)

New York - Nasdaq Composite: UP 0.2 percent at 23,654.16 (close)

London - FTSE 100: UP 0.1 percent at 9,655.02 (close)

Paris - CAC 40: DOWN 0.4 percent at 8,022.69 (close)

Frankfurt - DAX: DOWN 0.1 percent at 24,130.14 (close)

Tokyo - Nikkei 225: DOWN 0.1 percent at 50,602.80 (close)

Hong Kong - Hang Seng Index: UP 0.4 percent at 25,540.78 (close)

Shanghai - Composite: DOWN 0.2 percent at 3,900.50 (close)

Dollar/yen: DOWN at 155.92 yen from 156.88 yen on Tuesday

Euro/dollar: UP at $1.1693 from $1.1627

Pound/dollar: UP at $1.3384 from $1.3297

Euro/pound: DOWN at 87.36 pence from 87.43 pence

Brent North Sea Crude: UP 0.4 percent at $62.21 per barrel

West Texas Intermediate: UP 0.4 percent at $58.46 per barrel