What's New
Wall Street rallied on Friday to gain back some of this week's terrible losses.
Why It Matters
The stock market was projected to have one of its worst weeks of the year before Friday's gains.
What To Know
The three major stock market indexes, which measure how stocks perform, were up by the closing bell on Friday.
The S&P 500 climbed 1.1 percent, cutting its loss for the week to 2 percent. Meanwhile, the Dow Jones Industrial Average increased almost 500 points, after plummeting about 1,110 points on Wednesday.
The Nasdaq also saw a slight gain on Friday, rising 1 percent.
Stock Market Rocked By Worries Of High Inflation
U.S. stocks took a hit after the Federal Reserve suggested Wednesday it would cut interest rates just twice next year, rather than the four times estimated in September.
Fed Chair Jerome Powell said the threat of higher inflation was one of the reasons the central bank hinted that it may cut interest rates fewer times in 2025 than previously anticipated.
This shocked the market, which was seeing record highs in recent weeks as Wall Street widely assumed the Fed would deliver numerous rate cuts. Data from the financial services company CME Group showed that traders are now largely betting on the Fed slashing rates one, two or even zero times next year.
New Inflation Data Eases Worries
Inflation showed signs of cooling in November, according to a report released on Friday by the Commerce Department.
The Personal Consumption Expenditures (PCE) price index, the Federal Reserve's preferred inflation gauge, rose by just 0.1 percent from October to November, marking a significant deceleration compared to the 0.3 percent monthly increases seen in both September and October.
This better-than-expected inflation data caused traders to trim their bets for no interest rate cuts in 2025. Wall Street now sees a 16.5 percent chance of the Fed making zero cuts next year.
What People Are Saying
Brian Jacobsen, chief economist at Annex Wealth Management, told The Associated Press, "When optimism is rising and market multiples are expanding, it just takes a little fear to take the veneer off a market rally."
What Happens Next
Another reason Powell gave as to why the central bank may slow down their rate cuts was that some Fed officials are already trying to factor in uncertainties associated with the transition of a new administration.
President-elect Donald Trump will be inaugurated on January 20. There have been increasing concerns on Wall Street that Trump's preference for tariffs and other policies could further grow inflation. On the other hand, his policies could also potentially spark economic growth, according to those on Wall Street.
This article includes reporting from The Associated Press.
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