Washington — The Federal Reserve kept its key interest rate unchanged Wednesday for a third straight time, and its officials signaled that they expect to make three quarter-point cuts to their benchmark rate next year.
The Fed’s message Wednesday strongly suggested that it is finished with rate hikes — after the fastest increases in four decades — and is edging closer to cutting rates as early as next summer.
Speaking at a news conference, Chair Jerome Powell said that Fed officials are likely done raising rates because of how steadily inflation has cooled.
“Inflation keeps coming down, the labor market keeps getting back into balance and, it’s so far, so good,” Powell said after the Fed’s 19-member policy committee ended its latest meeting.
On Wall Street, traders celebrated the prospect of lower rates ahead. Stock prices soared and bond yields sank after the Fed issued its statement and Powell held his news conference. The Dow jumped 512 points, or 1.4%, to top 37,000 and surpass its prior peak of 36,799.65 set at the start of last year. Other, more widely followed indexes of U.S. stocks also leaped. The S&P 500 rose 1.4% and is within 2% of its own record. The Nasdaq composite also gained 1.4%.
Wednesday marked a major shift in the central bank’s outlook on interest rates and the economy. Just two weeks ago, Powell had said it was “premature” to conclude that the Fed has finished raising its key benchmark rate or to “speculate” about cuts in that rate.
But on Wednesday, he signaled that the Fed is almost certainly done raising rates. And he acknowledged that the officials had discussed the prospect of rate reductions in their meeting.
He also conceded that his warning, in a high-profile speech last year, that the “pain” of higher unemployment would accompany a sharp decline in inflation, was overly pessimistic. Instead, inflation has slowed significantly toward the Fed’s 2% target, even while unemployment, at 3.7%, and the pace of…
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