NEW YORK (AP) – Wall Street has edged higher after the head of the Federal Reserve (Fed) said interest rates were still uncertain.
The S&P 500 rose 0.7% in afternoon trading after several small gains and losses. At 2:20 p.m. ET, the Dow Jones Industrial Average was up 281 points, or 0.8 percent, to $34,380, while the Nasdaq Composite Index was up 0.8 percent.
In a much-anticipated speech, Fed Chairman Jerome Powell reiterated that future interest rate decisions would be based on upcoming data reports on inflation and the economy, without promising what would happen next.
Wall Street circled the speech on its calendar because it hoped Mr. Powell would say the Fed was done raising rates to curb inflation at the cost of slowing the economy and lowering investment prices.
Powell instead said the Fed could raise rates again if needed. Fed Chair Powell said inflation was still too high, although it had eased from its peak last summer.
But he also cautiously said he recognizes the risk of overshooting interest rates and doing “unnecessary damage to the economy.”
“Given the progress we have made, we are well positioned to proceed cautiously at future meetings, assessing incoming data, evolving prospects and risks,” Powell said.
For Brian Jacobsen, chief economist at Annex Wealth Management, one of Powell’s words stuck out, especially in relation to his speech at the same Fed event last year. This speech in 2022 caused stocks to plummet.
“Prudence is the new and powerful thing,” Jacobsen said. “Last year, Powell said the Fed would respond strongly, and it certainly did. Now they can walk cautiously.
The Fed has already raised key interest rates to their highest level since 2001 in an effort to curb high inflation. It increased from virtually zero at the beginning of last year.
Far higher interest rates have already shrunk manufacturing, and helped three high-profile US banks fail this spring. These have helped keep inflation down, but a string of better-than-expected economic reports has raised fears that upward pressure is still lingering. As such, the Fed could keep rates high for a long time.
Those expectations pushed the 10-year Treasury yield to its highest level since 2007 and stabilized at 4.24% since late Thursday. Three years ago it was less than 0.70%.
Higher yields mean that bonds pay more interest to investors. It also makes investors less likely to pay higher prices for stocks and other investments that can fluctuate more than bonds. Big techs and other high-growth stocks are particularly prone to such pressure.
The two-year Treasury rate, which tracks Fed expectations more closely, rose to 5.05% from 5.02% late Thursday. Traders see the chances of the Fed raising key rates again this year as a coin toss. Data from CME Group show a sharp increase over the past week.
The threat that interest rates will stay high for an extended period of time contributed to the stock market crash in August, the year of gangbusters. It also Nvidia’s Explosive Earnings Report Released Thursday, has become one of the most influential stocks on Wall Street. The chipmakers again gave stronger-than-expected forecasts for future earnings, giving hope that this year’s frenzy over artificial intelligence technology may be justified.
Marvel Technology, another company that has argued for AI-powered growth, also fell 6.3% on the profit report. The results slightly exceeded analyst expectations. The company’s stock had already risen nearly 55% on the day.
Wall Street winner Gap rose 6.5% after the retailer reported earnings beat analysts’ expectations in its most recent quarter, despite sales slightly below expectations.
In overseas markets, stock indices edged up in Europe after declining across much of Asia.
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Contributed by AP Business writers Yuri Kageyama and Matt Ott.