Stocks End Modestly Higher as Fed Moves to Soothe Inflation Fears

Stocks rise modestly as Federal Reserve officials maintain their belief that price increases from the recovering economy will be transitory.
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Stocks finished modestly higher Wednesday as Federal Reserve officials maintained their belief that price increases from the recovering economy will be transitory and will ease toward the latter half of 2021.

The Dow Jones Industrial Average edged up 10 points, or 0.03%, to 34,323, the S&P 500 ticked up 0.19% and the Nasdaq rose 0.59%.

Small-cap stocks led the advance on Wall Street. The Russell 2000 rose 2%.

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Fed officials have been playing down the risk of rising prices, reiterating the view that current inflation levels -- the highest since 2009 -- will slow into the end of the year as base effects fade and supply-chain bottlenecks ease.

Richard Clarida, vice chairman of the Federal Reserve, said in an interview with Yahoo Finance that rising inflation "will prove to be largely transitory." He added that if inflation was more "persistent," the Fed has the tools to bring it down to the central bank's long-term goal of 2%.

Investors, however, have remained worried that stronger inflation might prompt the Fed to pull back on its extraordinary support for the U.S. economy. Those concerns have led to a recent bout of uneven trading on Wall Street. 

Stocks finished lower Tuesday following a greater-than-forecast drop in U.S. home sales and consumer confidence that fell for the first time in six months.

Clarida said scaling back the central bank's $120 billion in monthly bond purchases, the first step toward raising interest rates, "was not the focus" of the Fed's last meeting.

"There will come a time in upcoming meetings we will be at the point where we can begin to discuss scaling back the pace of asset purchases," he said, but that will "depend on the flow of data."

Bond markets seem satisfied with the Fed's approach, with benchmark 10-year note yields steady at 1.579% on Wednesday.

Bitcoin prices, meanwhile, traded just below $40,000 as the world's largest cryptocurrency steadied following a stretch of volatility during May.

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Ford  (F) - Get Report finished higher after the automaker boosted its investment in clean energy technology to $30 billion and vowed to have 40% of its fleet fully electric within the next 10 years.

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Amazon.com  (AMZN) - Get Report reached an agreement to to buy MGM Studios for around $8.5 billion, a move that adds a host of legacy films to the online retailer's content as it continues to challenge Netflix  (NFLX) - Get Report and Walt Disney  (DIS) - Get Report in streaming.

Ford, Amazon and Walt Disney are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells the stocks? Learn more now.