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NEW YORK (AP) — U.S. stock indexes slipped Wednesday after the Federal Reserve opted not to cut interest rates for the first time since it began trying to help the economy through easier rates in September.
The S&P 500 fell 0.5% following the Fed’s widely expected decision. The Dow Jones Industrial Average dipped 137 points, or 0.3%, and the Nasdaq composite fell 0.5%.
The reaction was also relatively muted in the bond market following the Fed’s decision, which could hint at rates staying on hold for a while following their swift drop at the end of 2024. Lower rates would help the economy by making it cheaper for U.S. households and companies to borrow, but the downside is they could also give inflation more fuel.
Fed Chair Jerome Powell said after the decision that the central bank could cut rates if inflation were to slow further or if the job market suddenly weakened. But “right now, we don’t see that, and we see things as in a really good place for policy and for the economy, and so we feel like we don’t need to be in a hurry to make any adjustments.”
While Wall Street would almost always prefer lower interest rates, “we would continue to focus on why the Fed won’t cut anytime soon, specifically a strong economy and labor, which bodes well for solid corporate earnings growth,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute.
Wednesday's relatively calm movements for financial markets offered some respite following two days of disruption driven by doubts about the artificial-intelligence boom.
A Chinese upstart, DeepSeek, has raised nearly existential questions for some of the AI industry after saying it developed a large-language model that can compete with the world’s best without having to use top-flight chips.
That casts doubt about whether AI development broadly will require as much spending on chips, vast data centers and electricity as Wall Street and Big Tech had been assuming. That in turn has caused huge swings for stocks across the industry, particularly for Nvidia.
The company, whose stock has almost become a symbol of the AI bonanza, fell 4% Wednesday after plunging nearly 17% Monday and then jumping nearly 9% Tuesday. It was the single heaviest weight dragging the S&P 500 lower, by far.
Big gains for Nvidia and other Big Tech companies had been instrumental in the S&P 500’s rallying to back-to-back yearly gains of more than 20% for the first time since before the millennium. Nvidia alone accounted for more than a fifth of all of the S&P 500's total return last year.