NEW YORK -- U.S. stocks rallied Wednesday after the Federal Reserve indicated it may not need to pump the brakes any harder on Wall Street and the economy.
The S&P 500 rose 1.1% in its first trading coming off a third straight monthly loss. The Dow Jones Industrial Average gained 221 points, or 0.7%, and the Nasdaq composite jumped 1.6%.
Stocks built on gains as Treasury yields eased in the bond market after the Fed announced its decision to hold interest rates steady, as expected. The Fed has already yanked the overnight rate from nearly zero early last year to its highest level since 2001, above 5.25%.
Fed Chairman Jerome Powell said in the afternoon that the central bank still isn't sure its main interest rate is high enough to ensure high inflation will move down to its 2% target. That kept alive the possibility of more increases by the Fed. He also said cuts to interest rates, which can act like steroids for financial markets, aren't even on Fed officials' minds at the moment.
But Powell acknowledged that a recent run higher in longer-term Treasury yields, and the tumble in stock prices that it helped cause, are working on their own to slow the economy and could be starving high inflation of its fuel. If they can do that persistently, he indicated they could help the Fed whip inflation without requiring more rate increases.
The jump in yields has already brought the average 30-year fixed mortgage rate to nearly 8%, for example, "and those higher costs are going to weigh on economic activity to the extent this tightening persists."
And, he said, the Fed has time to assess the full effects of its past rate increases after unleashing a string of hikes that began early last year.
"It takes time, we know that, and you can't rush it," Powell said. "Slowing down is giving us a better sense of how much more we need to do, if we need to do more."
All together, Powell's comments were "dovish enough" for financial markets, according to Yung-Yu Ma, chief investment officer for BMO Wealth Management. "Dovish" is what Wall Street calls an inclination to keep interest rates easier, and Ma continues to expect the Fed won't raise rates any more.
Since the spring, longer-term Treasury yields have been rising rapidly and catching up with the Fed's overnight rate. They've rallied as the U.S. economy has remained remarkably resilient and the central bank has warned it may keep its short-term rate high for a long time. Last month, the 10-year Treasury yield topped 5% to reach its highest level since 2007.
High yields knock down prices for stocks and other investments while making borrowing more expensive for nearly everyone. That slows the economy and puts pressure on the entire financial system.
The yield on the 10-year Treasury sank to 4.76% Wednesday from 4.92% late Tuesday. Much of the drop came after the Fed gave a nod to the notion that higher bond yields and shakiness in financial markets may be slowing the economy on their own.
But yields were already easing in the morning following several mixed reports on the economy.
One report from ADP suggested hiring accelerated last month by employers outside the government, though not by as much as economists expected. A more comprehensive jobs report from the U.S. government will arrive Friday.
A separate report said U.S. employers were advertising slightly more job openings at the end of September than economists expected. The Fed has been hoping for softening there, which could take pressure off inflation without requiring many layoffs.
A third report, meanwhile, said U.S. manufacturing contracted by more last month than economists had forecast. Manufacturing has been one of the U.S. economy's hardest-hit areas.
All told, the S&P 500 rose 44.06 points to 4,237.86. The Dow gained 221.71 to 33,274.58, and the Nasdaq added 210.23 to 13,061.47.
Trader Gregory Rowe works on the floor of the New York Stock Exchange, Wednesday, Nov. 1, 2023. U.S. stocks are drifting Wednesday as Wall Street waits to hear what will come out of the Federal Reserve's latest announcement on interest rates. (AP Photo/Richard Drew)
A television screen shows the rate decision of the Federal Reserve as traders work on the floor of the New York Stock Exchange, Wednesday, Nov. 1, 2023. The Federal Reserve kept its key short-term interest rate unchanged Wednesday for a second straight time but left the door open to further rate hikes if inflation pressures should accelerate in the months ahead.(AP Photo/Richard Drew)
Trader Federico DeMarco works on the floor of the New York Stock Exchange, Wednesday, Nov. 1, 2023. U.S. stocks are drifting Wednesday as Wall Street waits to hear what will come out of the Federal Reserve's latest announcement on interest rates. (AP Photo/Richard Drew)
Trader Sal Suarino works on the floor of the New York Stock Exchange, Wednesday, Nov. 1, 2023. U.S. stocks are drifting Wednesday as Wall Street waits to hear what will come out of the Federal Reserve's latest announcement on interest rates. (AP Photo/Richard Drew)
Trader Michael Milano, right, works on the floor of the New York Stock Exchange, Wednesday, Nov. 1, 2023. U.S. stocks are drifting Wednesday as Wall Street waits to hear what will come out of the Federal Reserve's latest announcement on interest rates. (AP Photo/Richard Drew)
Trader Edward Curran, right, works on the floor of the New York Stock Exchange, Wednesday, Nov. 1, 2023. U.S. stocks are drifting Wednesday as Wall Street waits to hear what will come out of the Federal Reserve's latest announcement on interest rates. (AP Photo/Richard Drew)
A television screen shows the rate decision of the Federal Reserve as Specialist Meric Greenbaum works at his post on the floor of the New York Stock Exchange, Wednesday, Nov. 1, 2023. The Federal Reserve kept its key short-term interest rate unchanged Wednesday for a second straight time but left the door open to further rate hikes if inflation pressures should accelerate in the months ahead. (AP Photo/Richard Drew)
Trader Michael Capolino, left, works on the floor of the New York Stock Exchange, Wednesday, Nov. 1, 2023. U.S. stocks are drifting Wednesday as Wall Street waits to hear what will come out of the Federal Reserve's latest announcement on interest rates. (AP Photo/Richard Drew)
Specialist Dilip Patel, foreground, works with a colleague on the floor of the New York Stock Exchange, Wednesday, Nov. 1, 2023. U.S. stocks are drifting Wednesday as Wall Street waits to hear what will come out of the Federal Reserve's latest announcement on interest rates. (AP Photo/Richard Drew)