The US stock market continued to recover after a tough four-week period that pushed the S&P 500 into “correction territory.” Stocks went up as the Federal Reserve confirmed it still plans to cut interest rates twice in 2025.

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Strongest Market Reaction on a Fed Decision Day Since July Fed to Slow Down Balance Sheet Reduction

Dow Jones gained nearly 400 points
S&P 500 rose by 1.1%
Nasdaq increased by 1.4%

As expected, the Federal Reserve decided to keep interest rates unchanged at 4.25% to 4.5%. The Fed also said that economic uncertainty has increased, but it does not see a need for major action despite ongoing trade tensions from Donald Trump’s tariff policies.

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Strongest Market Reaction on a Fed Decision Day Since July

This rally was the biggest market jump on a Fed decision day since July last year. Other financial indicators reacted as well:

The 10-year Treasury yield fell to 4.24%
The US dollar rose slightly by 0.2%
The 2-year Treasury yield dropped below 4%

Bill Dudley, former president of the New York Fed, described Fed Chair Jerome Powell’s speech as “reassuring,” making investors feel confident that the Fed is handling the situation well.

Fed to Slow Down Balance Sheet Reduction

Starting in April, the Fed will reduce the speed at which it shrinks its balance sheet by letting fewer bonds roll off each month.

Stocks Rose Despite Economic Concerns

Although the Fed slightly lowered its growth forecast for 2025 and predicted higher inflation, the stock market still rallied. However, in the last hour of trading, stocks lost some momentum and ended below their daily highs.

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According to Amanda Lynam at BlackRock, much of the recent market decline had already factored in concerns about lower economic growth and rising inflation. “The stock market had already priced in the bad news,” she explained on Bloomberg TV.

Overall, investors seemed relieved by the Fed’s approach, helping markets bounce back after weeks of heavy losses.

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