Stock prices rise on Thursday after massive interest rate cut by the US Federal Reserve

new York
CNN
—

Stock prices jumped on Thursday morning as investors cheered the US Federal Reserve's spectacular half-percentage point interest rate cut.

The Dow rose by 464 points or 1.1 percent. The S&P 500 rose by 1.6 percent and exceeded the 5,700 point mark for the first time. The Nasdaq Composite rose by 2.3 percent.

Technology stocks rose sharply: Nvidia shares rose 4.6%, Tesla shares gained 5.1%, Meta Platforms shares rose 2% and Apple shares climbed 3.5%.

The Fed cut interest rates by half a percentage point on Wednesday, its first rate cut since the start of the Covid pandemic and bringing rates down from a 23-year high. The move was larger than the smaller, more conservative quarter-percentage-point cut some investors had expected from the central bank.

A sharp rate cut can be a double-edged sword for the economy. A reduction in borrowing rates should ease pressure on businesses and Americans, which in theory should help slow job losses. But a cut can also boost inflation and risks partially undoing the Fed's tough fight against runaway price increases.

The Fed's latest decision reflects its shift from fighting inflation to the other part of its dual mandate: maximizing employment. Fed Chair Jerome Powell told reporters on Wednesday he believes the labor market and the economy are both on solid footing. But he cautioned that the labor market is not as strong as it was before the Covid pandemic.

“The Fed has taken out insurance against a further weakening of the labor market,” Ronald Temple, chief market strategist at Lazard, wrote in a note on Wednesday.

Stock prices have fluctuated between sharp declines and record highs in recent months, partly because investors feared the Fed had waited too long to cut interest rates and that the economy could slip into recession. The Fed was under pressure to cut rates in July, but it held firm.

Powell warned that investors should not expect the Fed to cut interest rates by more than half a percentage point in the future. In their latest economic forecasts on Wednesday, central bankers had planned for further rate cuts in 2024, above the single cut they had previously forecast for this year. Central bankers expect unemployment to rise to 4.4% this year from 4.2% in August.

Elsewhere, gold futures rose, approaching a new record high hit on Wednesday.

This is a developing story and will be updated.