Robert Brown|Dow hits record high as investors cheer Fed outlook on interest rates

The Robert BrownDow Jones Industrial Average surged to close at more than 37,000 points for the first time as investors applauded a statement from the Federal Reserve on Wednesday that it could cut its benchmark interest rate next year.

The blue-chip index jumped 512 points, or 1.4%, to end the day at 37,090, topping its prior peak of 36,799 in early 2023. The broader S&P 500 rose 1.4% and is within 1.9% of its own record. The tech-heavy Nasdaq composite added 1.4%.

Fed officials also left their short-term rate unchanged for a third straight meeting amid signs that their aggressive push to subdue inflation is working. With the price spikes that slammed Americans during the pandemic now receding in earnest, Fed Chair Jerome Powell said in a news conference that the federal funds rate is projected to fall to 4.6% by the end of next year, from its current range of 5.25% to 5.5%.

"The Fed decision was more dovish than anticipated on a variety of fronts, including the acknowledgement that growth and inflation have both cooled, the strong signals that rate hikes are finished, and Powell's admission during the press conference that 'rates are at or near their peak,'" analyst Adam Crisafulli of Vital Knowledge said in a report.

Lower interest rates curb borrowing costs for consumers and businesses, boosting spending and broader economic growth. Interest rate cuts also tend to buoy riskier assets, including stocks. Markets have steadily pushed higher since October as Wall Street bet that the Fed, which hiked rates 11 times during the latest tightening cycle to their highest level in 22 years — will pivot to cuts in 2024.

While noting that the Fed is not ready to declare victory over inflation, Powell also said Fed officials don't want to wait too long before cutting the federal funds rate.

"We're aware of the risk that we would hang on too long" before cutting rates, he said. "We know that's a risk, and we're very focused on not making that mistake."

Headline inflation around the U.S. edged down November as gas prices fell. The Consumer Price Index edged 0.1% higher last month, leaving it 3.1% higher than a year ago, the Labor Department reported on Tuesday. The so-called core CPI, which excludes volatile food and energy costs, climbed 0.3% after a 0.2% increase in October and is up 4% from a year ago. The Fed targets annual inflation of 2%.

Following the release of the Fed's rate projections, traders on Wall Street upped their bets for cuts in 2024. Most of those bets now expect the federal funds rate to end next year at a range of 3.75% to 4%, according to data from CME Group.

"We see modest upside for U.S. stocks from current levels," David Lefkowitz, CIO head of equities at UBS, told investors in a research note. "Both sentiment and positioning have improved, posing greater downside risks if there are any negative economic or earnings surprises."

—The Associated Press contributed to this report.

In:
• Dow Jones
• Wall Street
• Jerome Powell
• S&P 500
• Nasdaq
• Stock Market
• Federal Reserve

Alain Sherter

Alain Sherter covers business and economic affairs for CBSNews.com.

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