Dow hits record high after Fed signals interest rate cuts next year

New projections from US central bank indicate that it has finished raising interest rates in current cycle

The Dow Jones Industrial Average climbed to a record high after the Federal Reserve indicated it will cut interest rates more than once next year.

Markets rallied after the Fed signalled it is probably finished raising interest rates after opting to leave them unchanged between 5.25 and 5.50 per cent.

The Dow climbed 512 points after the announcement to close at 37,090, the index's first record high since January 2022.

The S&P 500 and Nasdaq composite also rallied, climbing 1.37 per cent and 1.38 per cent respectively.

Wednesday's announcement from the Fed came after a series of economic data showed that the economy is trending in the direction towards a soft landing.

"I have always felt … that the economy could cool off in a way that inflation could cool down without the job losses associated with a recession," Fed chairman Jerome Powell told reporters.

"This result's not guaranteed. It's far too early to declare victory."

The Fed has raised interest rates by 525 basis points since March 2022 after an inflation surge in the US.

By raising rates, the Fed has sought to slow the economy without steering it into a recession, a situation that is otherwise known as a soft landing.

New projections released by the Fed show that officials are unanimous in believing interest rates have reached their peak, with most Fed participants projecting rates to fall somewhere between 4.25 per cent and 5.0 per cent by the end of next year.

But Mr Powell also acknowledged that a rate increase could still be appropriate if the data merits it.

"While participants do not think it is likely to be appropriate to raise rates further, neither do they want to take the possibility off the table."

After Mr Powell's remarks, traders predict that the first rate cut will be announced in March, up from their previous May projection.

Since the Fed has begun its aggressive tightening campaign, inflation has fallen considerably from 9.1 per cent to its current 3.1 per cent.

But it is still well above the Fed's long-term 2 per cent goal.

Consumer spending, which accounts for 70 per cent of the economy, is also showing signs of slowing, leading to expectations that the gross domestic product will decrease from its 5.2 per cent growth in the third quarter.

Economic growth has slowed from the "outsized pace seen in third quarter", Mr Powell said.

Still, the strong economy has led Fed officials to upwardly revise their September projections, estimating the economy will grow by 2.6 per cent this year compared to their previous 2.1 per cent estimate.