Key Takeaways

  • The Dow Jones powered above 37,000 for the first time, lifted by broad stock market optimism.
  • Fed chief Jerome Powell said inflation is coming down and three rate cuts are on the 2024 agenda.

Dow Jones Hits Record High 

The Dow Jones Industrial Average rose to a new record on Wednesday, closing at 37,090 points. Markets were ecstatic to hear the latest updates from the Federal Reserve and, finally, they got what they wanted.  

Fed boss Jerome Powell and his clique of central bankers left interest rates unchanged. More importantly, they signaled that three rate cuts might be coming next year. As many as 75 basis points are looking to get trimmed from the current 22-year high borrowing rate of 5.25% to 5.50%. 

The news spurred a rally across the board with all three major indexes notching gains of 1% or more. The Nasdaq Composite jumped roughly 1.4% and the S&P 500 turned in gains of just under 1.4%.  

What do borrowing costs have to do with stock markets rallies? With interest rates coming down from their multi-year high, investors will be more inclined to elevate their borrowing activities. In practice, that would mean more money will get injected into stocks, businesses, and the economy.  

All that is the ideal scenario in a world where inflation doesn’t rear its head. Lower borrowing costs, however, are a double-edged sword. On the one hand, they allow businesses to take out heftier loans so the economy runs well. On the other hand, the increased volatility threatens to release the inflation genie from the bottle.  

Dollar Sells Off

In the context of the Federal Reserve’s major news, the US dollar sold off against all rivals. The EUR/USD advanced more than 1% to cross the $1.09 threshold. The USD/JPY pair retreated by more than 1% and the GBP/USD exchange rate soared above $1.2650.