Dow Jones hits an all-time high as investors cheer progress on inflation

Wall Street is hopeful that the Fed is done raising interest rates and that the economy can avoid a

recession.

The Dow Jones Industrial Average set a new all-time high record Wednesday, reflecting new optimism that the economy is slowing just enough to bring down inflation without triggering a recession.

The Dow closed at 37,090, up more than 500 points for the day or 1.4 percent, surpassing a record in January 2022, fueled by the Fed decision to hold rates steady due to progress on inflation. The milestone caps off a banner couple of weeks for the U.S. stock market, including the tech-heavy Nasdaq and the S&P 500, bolstered by health-care stocks and promising earnings from technology companies.

The markets have been on a celebratory tear in recent weeks, as signs pile up that the Federal Reserve may be done raising interest rates. Inflation has come down dramatically since the Fed began hiking borrowing costs since last March to slow the economy from decades-high price growth. Federal Reserve policymakers now see as many as three rate cuts in 2024, the Fed announced Wednesday, although Chair Jerome H. Powell made it clear that interest rate cuts would depend on how the economy is doing.

“We’ll look at the totality of the data,” he said in a Wednesday news conference. “Growth is one thing. So is inflation. So is the labor market data. So we look, we’d look at the total as we have we make decisions about policy changes going forward. ...We’re going to look at all those things.”

The last rate hike was in July, and higher interest rates have been cooling the economy in ways that have heartened policymakers. Inflation has come down dramatically — from last summer’s high of 9.1 percent to 3.1 percent in November. Wage growth is slowing, consumers are spending less, and the job market — while still strong — is moderating to a more reasonable pace. Economists appear increasingly confident that the Fed can pull off a “soft landing,” by quelling inflation without setting off a sharp rise in unemployment.

“The soft landing is in the bag,” said Claudia Sahm, founder of Sahm Consulting and a former Fed economist. “Inflation has come down for several months and recession calls are coming off the table. Barring any other catastrophe, the economy has done the impossible.” (The Washington Post)