Wall Street climbs in choppy trading after Fed warns of rising risks for
economy, holds rates steady
[May 08, 2025] By
DAMIAN J. TROISE and STAN CHOE
NEW YORK (AP) — U.S. stocks ticked higher Wednesday after the Federal
Reserve left its main interest alone, as was widely expected, but also
warned about rising risks for the U.S. economy.
The S&P 500 gained 0.4%, coming off a two-day losing streak that had
snapped its nine-day winning run. The Dow Jones Industrial Average added
284 points, or 0.7%, and the Nasdaq composite rose 0.3%.
Indexes swiveled repeatedly through the day, and the Dow briefly climbed
as many as 400 points on hopes that the United States and China may be
making the first moves toward a trade deal that could protect the global
economy. The world’s two largest economies have been placing
ever-increasing tariffs on products coming from each other in an
escalating trade war, and the fear is that they could cause a recession
unless they allow trade to move more freely.
The announcement for high-level talks between U.S. and Chinese officials
this weekend in Switzerland helped raise optimism, but some of that
washed away after President Donald Trump said he would not reduce his
145% tariffs on Chinese goods as a condition for negotiations. China has
made the de-escalation of the tariffs a requirement for trade
negotiations, which the meetings are supposed to help establish.
Such on-and-off uncertainty surrounding tariffs has helped create sharp
swings within the U.S. economy, including a rush of imports in the hopes
of beating tariffs. Underneath those swings, as well as surveys showing
U.S. households are growing much more pessimistic about the future, the
Fed said it continues to see the economy running “at a solid pace” at
the moment.
Fed Chair Jerome Powell said that gives the central bank time to wait
before making any potential moves on interest rates, even if Trump has
been lobbying for quicker cuts to juice the economy.
“There’s so much that we don’t know,” Powell said. So like the rest of
Wall Street and the world, the Fed is waiting to see what will actually
end up happening in Trump’s trade war and whether his tariffs, which
were much stiffer than expected, will hit as proposed.
That’s particularly the case after the trade war seems to be entering “a
new phase,” Powell said, where the United States is conducting more
talks on trade with other countries.
To be sure, the Fed also said it appreciates that risks to the economy
are rising because of tariffs, which could both weaken the job market
and push inflation higher.
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Specialist Gregg Maloney, left, works on the floor of the New York
Stock Exchange, Wednesday, May 7, 2025. (AP Photo/Richard Drew)
 “If the large increases in tariffs
that have been announced are sustained, they are likely to generate
a rise in inflation, a slowdown in economic growth and an increase
in unemployment,” Powell said.
That could ultimately put the Fed in a worst-case scenario called
“stagflation,” where the economy is stagnating while inflation
remains high. Such a combination is hated because the Fed has no
good tools to fix it. If the Fed were to try to cut interest rates
to bolster the economy and job market, for example, it could raise
inflation further. Raising rates would have the opposite effect.
In the meantime, big U.S. companies continue to produce fatter
profits for the start of 2025 than analysts expected.
The Walt Disney Co. jumped 10.8% after easily beating analysts’
profit targets, raising its profit forecast and adding more than a
million streaming subscribers.
Companies, though, are also continuing to warn about how uncertainty
in the economy is making it more difficult for them to forecast
their own finances.
Chipmaker Marvell Technology slumped 8% after it postponed its
investor day from June to an undetermined date because of
uncertainty over the economy.
All told, the S&P 500 rose 24.37 points to 5,631.28. The Dow Jones
Industrial Average added 284.97 points to 41,113.97, and the Nasdaq
composite gained 48.50 to 17,738.16.
In the bond market, Treasury yields fell following the Fed’s
announcement. The yield on the 10-year Treasury eased to 4.27% from
4.30% late Tuesday.
Markets in Europe mostly lost ground, while markets in Asia rose.
Indexes rose 0.1% in Hong Kong and 0.8% in Shanghai after Beijing
rolled out interest rate cuts and other moves to help support the
Chinese economy and markets as higher tariffs ordered by Trump hit
the country’s exports.
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AP business writers Elaine Kurtenbach and Matt Ott contributed to
this report.
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