US equities edged up on Wednesday following the Federal Reserve's decision to maintain its key interest rate, a move largely anticipated by the market, though the central bank simultaneously cautioned about increasing risks to the American economy.

The S&P 500 advanced by 0.4%, recovering from a two-day decline that had interrupted a nine-day period of gains. The Dow Jones Industrial Average increased by 284 points, or 0.7%, and the Nasdaq composite saw a rise of 0.3%.

Throughout the day, indexes fluctuated considerably, with the Dow temporarily rising by around 400 points, driven by optimism that the US and China might be initiating steps towards a trade agreement capable of safeguarding the global economy. The two largest economies have been imposing progressively higher tariffs on each other's goods in a worsening trade conflict, sparking concerns that this could trigger a recession unless trade is permitted to flow more openly.

Initially, the announcement of high-level discussions between U.S. and Chinese officials in Switzerland this weekend fostered a degree of optimism. However, this sentiment was somewhat tempered after President Donald Trump indicated he would not unilaterally reduce the 145% tariffs on Chinese imports as a prerequisite for negotiations. Conversely, China has consistently stipulated the de-escalation of these tariffs as a fundamental condition for engaging in trade negotiations, which these meetings are ostensibly intended to facilitate.

The intermittent ambiguity regarding tariffs has contributed to substantial fluctuations within the U.S. economy, such as a surge in imports aimed at circumventing tariffs. Despite these fluctuations and surveys indicating growing pessimism among U.S. households, the Fed maintains its assessment that the economy is currently progressing at a robust pace.

Fed Chair Jerome Powell stated that this provides the central bank with time to delay any possible actions on interest rates, even though Trump has been pushing for faster cuts to boost the economy.

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

This is especially pertinent as the trade dispute appears to be entering "a new phase," Powell remarked, where the United States is engaging in increased trade discussions with other nations.

Admittedly, the Federal Reserve acknowledged the escalating risks to the economy posed by tariffs, which could potentially undermine employment growth and fuel inflationary pressures.

Powell stated, "If the substantial tariff hikes that have been announced persist, they are likely to provoke an uptick in inflation, a deceleration in economic expansion, and a rise in joblessness."

This situation could lead to a very bad scenario for the Federal Reserve called "stagflation." This happens when the economy is not growing, but prices are still going up a lot. This combination is difficult because the Fed doesn't have good ways to fix it. For example, if the Fed tried to lower interest rates to help the economy and create jobs, it might make inflation even worse. But raising interest rates would have the opposite effect.

Concurrently, major U.S. corporations persist in generating more substantial profits for the commencement of 2025 than analysts had anticipated.

Following an impressive performance that surpassed analysts' profit expectations and prompted an increase in its earnings outlook, The Walt Disney Co. experienced a significant 10.8% surge, further bolstered by the acquisition of over a million additional streaming subscribers.

Nevertheless, companies persist in expressing concerns about the economic unpredictability, which significantly hampers their ability to project their financial performance.

Marvell Technology, a chipmaker, experienced an 8% drop in its stock price following the postponement of its investor day from June to an unspecified future date due to economic uncertainty.

Overall, the S&P 500 increased by 24.37 points, reaching 5,631.28. The Dow Jones Industrial Average saw an addition of 284.97 points, rising to 41,113.97, and the Nasdaq composite recorded a gain of 48.50, closing at 17,738.16.

In the bond market, Treasury yields declined subsequent to the Federal Reserve's pronouncement. The yield on the 10-year Treasury decreased to 4.27% from 4.30% late on Tuesday.

European markets largely experienced declines, while their Asian counterparts saw gains. Indices in Hong Kong advanced by 0.1% and in Shanghai by 0.8%, following Beijing's implementation of interest rate reductions and other measures aimed at bolstering the Chinese economy and markets, particularly as exports face pressure from elevated tariffs mandated by Trump.