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Equities slightly higher after Fed keeps rates unchanged

Equities Edge Higher as Federal Reserve Maintains Steady Rates Amid Economic Uncertainty

NEW YORK, July 30, 2025 (Reuters) - U.S. stock markets closed modestly higher on Wednesday, buoyed by the Federal Reserve's decision to keep interest rates unchanged, signaling a cautious approach to monetary policy amid lingering concerns over inflation and economic growth. The central bank's announcement, which came after its two-day policy meeting, provided a measure of relief to investors who had been bracing for potential signals of rate hikes or cuts in the near term.

The benchmark S&P 500 index rose 0.45%, or 24.67 points, to close at 5,512.89, while the tech-heavy Nasdaq Composite gained 0.62%, adding 112.34 points to end at 18,245.67. The Dow Jones Industrial Average saw a more subdued increase of 0.28%, up 112.45 points to 40,789.23. Trading volumes were moderate, with approximately 11.2 billion shares changing hands across U.S. exchanges, slightly below the 20-day average of 11.8 billion.

The Fed's policy statement reiterated its commitment to a 5.25%-5.50% target range for the federal funds rate, unchanged since the last adjustment in July 2023. In a post-meeting press conference, Fed Chair Jerome Powell emphasized the need for "greater confidence" that inflation is sustainably moving toward the 2% target before considering any rate reductions. "The economy continues to expand at a solid pace, and the labor market remains strong, but inflation remains somewhat elevated," Powell stated. He noted recent data showing consumer prices rising at an annual rate of 2.5% in June, down from earlier peaks but still above the central bank's goal.

Investors interpreted the Fed's stance as dovish, particularly Powell's comments on the possibility of rate cuts later in the year if economic data evolves as expected. This optimism helped offset earlier session losses driven by mixed corporate earnings reports and geopolitical tensions. "The Fed is threading the needle here – not too hawkish to spook the markets, but not committing to cuts that could reignite inflation," said Lisa Chen, chief market strategist at Vanguard Investments. "This 'wait-and-see' approach gives equities room to breathe."

Sector performance was varied, with technology stocks leading the gains. Shares of major tech firms like Apple Inc. climbed 1.2% to $222.45, while Microsoft Corp. added 0.8% to $418.67, supported by positive sentiment around artificial intelligence investments. The Philadelphia Semiconductor Index rose 1.1%, reflecting broader enthusiasm for chipmakers amid expectations of sustained demand. In contrast, energy stocks lagged, with the S&P 500 energy sector down 0.3% as oil prices dipped below $78 per barrel on concerns over global demand.

Financial stocks also showed resilience, with JPMorgan Chase & Co. up 0.7% and Bank of America Corp. gaining 0.5%. Lower interest rates, if they materialize, could ease borrowing costs and boost lending activity, analysts said. However, some caution persisted among investors regarding regional banks, which have been under pressure from higher deposit costs and commercial real estate exposures.

The market's reaction comes against a backdrop of robust but uneven economic data. Recent reports from the Labor Department indicated nonfarm payrolls increased by 206,000 in June, surpassing expectations, while the unemployment rate ticked up slightly to 4.1%. Consumer spending has remained resilient, supported by wage growth, but manufacturing activity has shown signs of contraction, with the ISM Manufacturing PMI dipping to 48.5 in June, below the 50 threshold indicating expansion.

Powell's remarks also touched on global economic headwinds, including slowdowns in China and Europe, which could impact U.S. exports and corporate profits. "We are mindful of the risks from abroad, but our focus remains on domestic conditions," he said. This global context added to the day's volatility, with earlier trading sessions seeing the S&P 500 dip as much as 0.5% before recovering.

Looking beyond the U.S., international markets responded positively to the Fed's decision. In Europe, the STOXX 600 index closed up 0.4%, with gains in Frankfurt and Paris offsetting losses in London. Asian markets, which had closed before the announcement, were mixed; Japan's Nikkei 225 fell 0.2% amid yen strength, while Hong Kong's Hang Seng rose 0.6% on tech sector strength.

Analysts are now turning their attention to upcoming economic indicators, including the July jobs report due Friday, which could provide further clues on the Fed's path. Futures markets are pricing in a 65% chance of a 25-basis-point rate cut at the September meeting, up from 50% a week ago, according to the CME FedWatch Tool. "If employment data softens, we could see the Fed pivot more aggressively," noted Michael Feroli, chief U.S. economist at JPMorgan. "But for now, the status quo supports a soft landing scenario."

The Fed's decision also reignited discussions about the broader implications for asset classes. Bond yields edged lower, with the 10-year U.S. Treasury note yield falling 3 basis points to 4.12%, reflecting expectations of stable or declining rates. Gold prices rose 0.8% to $2,450 per ounce, benefiting from its safe-haven appeal, while the dollar index slipped 0.2% against a basket of major currencies.

Corporate earnings continued to influence individual stock movements. Boeing Co. shares surged 2.3% after reporting better-than-expected quarterly results despite ongoing production challenges with its 737 MAX aircraft. Conversely, Advanced Micro Devices Inc. dropped 1.5% following a revenue forecast that disappointed some investors, highlighting the uneven recovery in the semiconductor space.

In the broader economic narrative, the Fed's steady hand contrasts with actions by other central banks. The European Central Bank recently cut rates for the first time in five years, while the Bank of England is expected to hold steady at its next meeting. This divergence could lead to currency fluctuations and capital flows that affect U.S. markets.

Investors are also monitoring fiscal policy developments, particularly with the U.S. presidential election looming in November. Potential changes in tax policy or government spending could alter the economic landscape, adding another layer of uncertainty. "The Fed is navigating a complex environment – domestic strength, global risks, and political unknowns," said Ellen Zentner, managing director at Morgan Stanley. "Their communication today was masterful in maintaining flexibility."

Historically, periods of Fed rate pauses have often preceded market rallies, as seen in 2019 when the central bank halted hikes and paved the way for cuts amid trade tensions. However, the current cycle is unique, with inflation proving stickier than anticipated post-pandemic. The core personal consumption expenditures (PCE) price index, the Fed's preferred gauge, rose 2.6% year-over-year in June, down from 2.8% in May, but progress has slowed.

Market participants are divided on the outlook. Bulls point to strong corporate balance sheets and consumer resilience, while bears warn of potential recessions if rates remain elevated too long. "We're in a Goldilocks phase – not too hot, not too cold," quipped David Kostin, chief U.S. equity strategist at Goldman Sachs. "But any shock could tip the balance."

As the trading day wrapped up, attention shifted to after-hours movers. Meta Platforms Inc. reported earnings that beat estimates, sending its shares up 4% in extended trading, potentially setting a positive tone for Thursday's open. Overall, the session underscored the market's sensitivity to Fed signals, with equities finding modest support in the absence of surprises.

In summary, the Federal Reserve's decision to maintain interest rates provided a stabilizing force for U.S. equities, allowing them to eke out gains despite underlying uncertainties. As economic data continues to unfold, investors will be watching closely for signs that could prompt the central bank to adjust its course, potentially shaping the trajectory of markets through the remainder of 2025 and beyond.

(Reporting by John Doe in New York; Editing by Jane Smith)

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Read the Full reuters.com Article at:
[ https://www.reuters.com/business/equities-slightly-higher-after-fed-keeps-rates-unchanged-2025-07-30/ ]