Following the Federal Reserve's anticipated decision to maintain its benchmark interest rate, U.S. equities saw a modest increase on Wednesday, though the central bank concurrently cautioned about burgeoning risks to the American economy.

The S&P 500 index saw a 0.4% rise, recovering after two days of losses which had ended a nine-day period of gains. Concurrently, the Dow Jones Industrial Average increased by 284 points, equating to a 0.7% gain, while the Nasdaq composite advanced by 0.3%.

Throughout the day, indices fluctuated considerably, with the Dow momentarily surging by up to 400 points, fueled by optimism regarding potential preliminary steps towards a trade agreement between the United States and China, which could safeguard the global economy. The escalating trade dispute between these two dominant economies, marked by continually rising tariffs on reciprocal imports, has generated concerns about the potential for a recession unless measures are taken to facilitate more unrestricted trade.

The news about the important talks between the U.S. and China in Switzerland this weekend made people feel more hopeful. However, this hope decreased after President Trump said he would not lower the 145% taxes on Chinese products to start the talks. China has said that lowering these taxes is necessary for trade talks to happen, and these meetings are meant to help start those talks.

The changing rules about tariffs have caused big ups and downs in the U.S. economy. For example, people imported a lot of goods quickly to avoid paying the tariffs later. Even though there are these changes and surveys show that people in the U.S. are feeling less hopeful about the future, the Fed still says the economy is growing at a good speed right now.

Federal Reserve Chairman Jerome Powell stated that this allows the central bank to wait before potentially changing interest rates, even though President Trump has been pushing for faster cuts to boost the economy.

"There's a lot we don't know," Powell said. So, like others on Wall Street and around the world, the Fed is waiting to see what will really happen in Trump's trade dispute and if his tariffs, which were much tougher than expected, will be put in place as planned.

This is particularly pertinent given that the trade conflict appears to be transitioning into "a new phase," as articulated by Powell, wherein the United States is engaging in more extensive trade discussions with a broader range of nations.

Undoubtedly, the Federal Reserve acknowledged the escalating economic risks posed by tariffs, which have the potential to both destabilize the labour market and fuel inflationary pressures.

Powell stated that if the significant tariff hikes announced persist, they would likely lead to increased inflation, stunted economic growth, and rising unemployment.

This scenario could culminate in a dire situation for the Federal Reserve, termed "stagflation," characterized by economic stagnation coupled with persistent high inflation. This confluence of factors is particularly problematic as the Fed lacks effective instruments to address it. For instance, a move to lower interest rates to stimulate economic activity and employment could exacerbate inflationary pressures, whereas increasing rates would yield the contrary outcome.

Concurrently, major U.S. corporations persist in generating greater profits at the outset of 2025 than analysts had predicted.

The Walt Disney Co. experienced a notable increase of 10.8% after significantly surpassing analysts' profit expectations, subsequently elevating its profit projections and acquiring over a million additional streaming subscribers.

However, companies are consistently highlighting how economic uncertainty is complicating their financial projections.

Marvell Technology, a prominent chipmaker, saw its stock price fall by eight per cent following the postponement of its investor day, originally scheduled for June, to a later, unspecified date due to the prevailing economic uncertainty.

Collectively, the S&P 500 index climbed by 24.37 points, closing at 5,631.28. The Dow Jones Industrial Average saw an increase of 284.97 points, reaching 41,113.97, while the Nasdaq composite advanced by 48.50 points, ending at 17,738.16.

In the bond market, Treasury yields decreased after the Fed's declaration, with the yield on the 10-year Treasury falling to 4.27% from 4.30% late on Tuesday.

European markets largely experienced declines, while their Asian counterparts saw gains, with indexes in Hong Kong and Shanghai advancing by 0.1% and 0.8% respectively. This upturn followed Beijing's implementation of interest rate reductions and other stimulative measures aimed at bolstering the Chinese economy and markets, which have been adversely affected by the escalated tariffs imposed by Trump on the nation's exports.