Wall Street ends higher, Treasury yields slip as Fed sees rate cuts this year

By Stephen Culp

NEW YORK (Reuters) -U.S. stocks bounced on Wednesday after the U.S. Federal Reserve left its key interest rate unchanged but hinted it would reduce borrowing costs by half a percentage point by the end of the year.

Gold flipped positive, touching a record high, and U.S. Treasury yields pared gains after the central bank lowered its economic outlook for the year and marked up its inflation expectations in view of U.S. President Donald Trump's tariff rollouts.

All three major U.S. stock indexes gained upward momentum after the announcement, with tech-related megacaps boosting the Nasdaq to a 1.4% advance on the day.

"Given growing worries around tariffs and how they could affect U.S. growth and inflation, the Fed took a widely expected 'wait and see' approach on rates," said Matthias Scheiber, head of the multi-asset solutions team at Allspring Global Investments in London.

"We believe the next likely window for the Fed to lower rates will be May or later, and market analysts expect two cuts in 2025."

At his subsequent Q&A session, Fed Chair Jerome Powell acknowledged inflation is still elevated and uncertainties related to policy changes persist, but he provided reassurance that the economy remains strong and the labor market is solid.

International investors had been focused on Turkey after President Tayyip Erdogan's main political rival was detained in what the main opposition party called "a coup against our next president," battering Turkish stocks and sending the lira plunging as much as 14.5% against the dollar, before paring those losses.

Ukrainian President Volodymyr Zelenskiy spoke with U.S. President Donald Trump on Wednesday, with the leaders agreeing to work to end the war in Ukraine.

"We live in such a global society, there's always going to be something happening out there in the world," said Matthew Keator, managing partner in the Keator Group, a wealth management firm in Lenox, Massachusetts. "But long-term investors, I believe, have the ability to kind of look through some of that day-to-day noise."

The Dow Jones Industrial Average rose 383.32 points, or 0.92%, to 41,964.63, the S&P 500 gained 60.63 points, or 1.08%, to 5,675.29 and the Nasdaq Composite rose 246.67 points, or 1.41%, to 17,750.79.

European stocks closed higher, notching their fourth consecutive session of gains buoyed by Germany's debt overhaul as investors focused on the Fed.

Europe's broad FTSEurofirst 300 index rose 4.30 points, or 0.20%.

MSCI's gauge of stocks across the globe rose 6.53 points, or 0.78%, to 846.06.

The pan-European STOXX 600 index rose 0.19%, while Emerging market stocks fell 1.94 points, or 0.17%, to 1,143.23. MSCI's broadest index of Asia-Pacific shares outside Japan closed lower by 0.14%, to 594.18, while Japan's Nikkei fell 93.54 points, or 0.25%, to 37,751.88.

The dollar gave back some gains in the wake of the central bank's decision to keep rates unchanged, but the Fed indicated that policymakers expect to reduce borrowing costs by half a percentage point this year.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro,rose 0.18% to 103.49, with the euro down 0.39% at $1.09.

Against the Japanese yen, the dollar weakened 0.26% to 148.87.

The Turkish lira weakened by 3.62% at 38.00 per dollar.

Cryptocurrencies gathered some momentum in the wake of the Fed's downgraded economic outlook.

Bitcoin gained 4.33% to $85,561.91. Ethereum rose 6.69% to $2,032.87.

U.S. Treasury yields pared their earlier advance after policymakers indicated they anticipate the Fed funds target rate will be reduced by 50 basis points this year.

The yield on benchmark U.S. 10-year notes fell 3.3 basis points to 4.249%, from 4.281% late on Tuesday.The 30-year bond yield fell 2 basis points to 4.5593% from 4.579% late on Tuesday.

The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 6.3 basis points to 3.979%, from 4.042% late on Tuesday.

Crude prices gained ground after U.S. data showed an inventory drawdown, while markets kept an eye on the limited Russia-Ukraine ceasefire.

U.S. crude rose 0.39% to settle at $67.16 per barrel, while Brent settled at $70.78 per barrel, up 0.31% on the day.

Gold prices turned positive and touched a record high in the wake of the Fed's lowered economic projections.

Spot gold rose 0.43% to $3,047.00 an ounce. U.S. gold futures rose 0.24% to $3,042.30 an ounce.

(Reporting by Stephen Culp; Editing by Rod NickelAdditional reporting by Chuck Mikolajczak in New York, Harry Robertson in London and Ankur Banerjee in Singapore; Editing by Frances Kerry, Cynthia Osterman and Rod Nickel)