A trader works on the floor of the New York Stock Exchange (NYSE) on December 10, 2025 in New York City, USA, as Federal Reserve Chairman Jerome Powell’s press conference after the Fed’s interest rate announcement is broadcast on a screen.
Brendan McDiarmid | Reuters
of Dow Jones Industrial Average Stocks soared on Wednesday after the U.S. Federal Reserve decided to cut interest rates again this year, with traders betting more easing is on the way next year.
The 30-issue average rose 497.46 points (1.1%) to close at 48,057.75. of S&P500 It rose 0.7% to close at 6,886.68, briefly trading above its all-time high of 6,890.89. of Nasdaq Composite It rose 0.3% to 23,654.16.
The Fed approved another quarter-point rate cut at the end of its two-day policy meeting. This is the third consecutive rate cut, and the federal funds rate will now range from 3.5% to 3.75%.
The Fed’s message and subsequent statements from Chairman Jerome Powell included a number of items that Wall Street viewed as bullish for the stock market.
Notably, the Federal Reserve announced it would start buying short-term bonds and expand its balance sheet. As a result, short-term government bond yields fell. In its statement, the central bank noted the weakness in the labor market and removed the phrase “remaining low.” This suggests the Fed is shifting its focus from supporting the economy to supporting the economy. Powell said the Fed would have to “wait and see” before taking next action, but also effectively ruled out the possibility of another rate hike. “I don’t think a rate hike is anyone’s base case scenario at this point,” he said.
Meanwhile, the Fed expects only one rate cut in 2026, but traders expect more cuts. In fact, according to the CME FedWatch tool, federal funds futures are pricing in a more than 77% chance that the central bank will cut rates two more times next year.
“The lack of significant cuts may have been interpreted negatively by Wall Street, but news that balance sheets are starting to grow again, albeit slowly, is certainly a reason to be excited and more than offsets concerns that future benchmark cuts will be limited,” said Jose Torres, senior economist at Interactive Brokers. “Additionally, the dots feature stronger growth expectations, mild inflation expectations, and neutral employment expectations, developments that similarly support the bullish reaction in stock prices and yields.”
S&P 500, year-to-date
On October 29, the day after the S&P 500 index closed at a record high, the Fed cut interest rates, but Chairman Jerome Powell indicated that another rate cut in December was not a certainty. Stocks fell on that day and remained in a tough spot for most of November, until some Fed members began to suggest that a December rate cut might be in order.
The benchmark then went back and forth.
“The final interest rate decision of 2025 effectively paves the way for a year-end Santa Claus rally, with the S&P 500 poised to cross the 7,000 milestone in the coming weeks,” Torres said.
