United States equities closed higher on Wednesday (Thursday AEDT) after the Federal Reserve lowered interest rates for the third consecutive meeting and investors grew confident that more easing could follow next year.
The policy shift, paired with broadly supportive commentary from Chair Jerome Powell, helped propel major benchmarks sharply higher.
The Dow Jones Industrial Average climbed 497.5 points, or 1.1%, to close at 48,057.8, while the S&P 500 added 46.2 points, or 0.7%, to finish at 6,886.7. The benchmark index briefly traded above its record closing high of 6,890.89 before easing slightly into the close.
The Nasdaq Composite rose 77.7 points, or 0.3%, ending the session at 23,654.2.
Investors welcomed the Fed’s decision to reduce the federal funds rate by another quarter percentage point, bringing the target range to 3.5%-3.75%.
The move, expected by markets, reinforced expectations that the central bank is edging toward a more accommodative policy stance as economic conditions soften.
Several elements of the Fed’s announcement and Powell’s remarks were interpreted as positive for risk assets. The central bank revealed that it will begin buying short-term Treasury securities, expanding its balance sheet at a moment when market liquidity has been under scrutiny.
The shift immediately pushed U.S. Treasury yields lower, providing further support for equities. The 10-year yield dropped 0.9% to 4.151%, while the two-year yield slid 2% to 3.542%
In its statement, the Fed also acknowledged a weakening labour market, removing earlier language that it “remained low”. The adjustment was read as a sign that policymakers are increasingly concerned about the broader economic slowdown rather than inflation, which has eased considerably from its peak.
Powell reinforced that stance at his press conference, noting that the committee would “wait and see” before committing to further moves, but downplaying any possibility of tightening.
“I don’t think that a rate hike ... is anybody’s base case at this point,” he said, all but ruling out a reversal in policy direction.
Still, some parts of the Fed’s outlook remained more cautious than investors had hoped. Officials projected only one rate cut in 2026, suggesting that the easing cycle may not be as aggressive as markets expect.
Traders, however, continue to price in a more dovish trajectory: The CME Group FedWatch Tool showed fed funds futures assigning more than a 77% probability to two additional cuts next year.
Analysts at ING pointed to mixed signals in the Fed’s forecasts. "Looking at the forecasts, there is clearly a hawkish tilt. While two members voted for no change today, six members felt the 'appropriate' rate should be 3.875% – not the 3.625% central range we are now at.
“Moreover, they have revised up their fourth quarter 2026 year-on-year GDP growth forecast to 2.3% from 1.8%, which Chair Powell attributed to a rebound following the end of the government shutdown and ongoing rapid data centre spending.”
