Wall Street is rising again Thursday following its big rally the day before on excitement that several cuts to interest rates may indeed be coming next year, as hoped.
The Standard & Poor's 500 was 0.6% higher in early trading and within 1.3% of its all-time high set early last year. The Dow Jones industrial average was up 93 points, or 0.3%, and on track to set a record for a second straight day, as of 9:35 a.m. Eastern. The Nasdaq composite was 0.6% higher.
But the rally for stocks and drop for Treasury yields seem to be banking on the Federal Reserve pulling off what was considered a long shot not long ago.
The hope is that the Fed can manage its interest-rate policy exactly right: first, by slowing the economy and hurting investment prices enough through high interest rates to snuff out inflation, and then by making conditions easier at the right time to prevent the economy from slowing too much and sliding into a painful recession.
That’s still not assured, as both Fed officials and cautious investors are warning.
One threat is that the economy stays too hot, which would keep upward pressure on inflation and could force the Fed to at least keep rates high for longer or hike them again.
A couple reports on Thursday may have flagged such threats. One showed U.S.
shoppers spent more at retailers in November than October, when economists were forecasting a slight decline. Another report said fewer U.S. workers applied for
jobless benefits last week, a signal of a remarkably resilient job market.
Treasury yields briefly undid some of their declines following the reports, which were both stronger than economists expected. But traders are still betting on a better than three-in-four chance that the Federal Reserve will cut its main interest rate by at least 1.50 percentage points next year, according to data from CME Group. That’s double what the median Fed official is expecting.
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