S&P 500 ends nearly flat, gives back gains; Fed's Powell says inflation to rise

The S&P 500 ended nearly flat on Wednesday, giving back earlier gains after Federal Reserve Chair Jerome Powell said inflation in goods prices is expected to go up over the summer as President Donald Trump's tariffs work their way to consumers.

The U.S. central bank left interest rates unchanged, as expected. In the statement, policymakers maintained expectations for two cuts this year, but a rising minority expected no rate cuts at all. Also, they slightly slowed the expected pace to a single quarter-percentage-point cut in each of 2026 and 2027.

Stocks were moderately higher before Powell's comments. As he spoke, U.S. Treasury yields also pared most of their earlier drop.

"He made it quite clear he's not going to change monetary policy until they are sure of the tariffs' effect on inflation," said Peter Cardillo, chief market economist at Spartan Capital Securities.

So, "you have the combination of yields going up, and the fact that it's going to take time to see the effects" of the tariffs, he said.

Investors also have been closely watching developments in the Middle East. Some worry about the possibility of a more direct U.S. military involvement in the Israel-Iran aerial war.

Iranian Supreme Leader Ayatollah Ali Khamenei rejected Trump's demand for unconditional surrender. Trump said his patience had run out, though he did not indicate what his next step would be.

Energy SPN led declines among S&P 500 sectors, while information technology S5INFT was up the most.

The Dow Jones Industrial Average DJI fell 44.14 points, or 0.10%, to 42,171.66, the S&P 500 SPX lost 1.85 points, or 0.03%, to 5,980.87 and the Nasdaq Composite IXIC gained 25.18 points, or 0.13%, to 19,546.27.

Early in the day, initial jobless claims data showed the number of Americans filing new applications for unemployment benefits fell last week, but stayed at levels consistent with a further loss of labor market momentum in June.

Powell's "message was consistent with what has been telegraphed. Inflation is still elevated, but tariffs in the coming months will be a wild card. Powell said if not for tariffs he would be cutting rates now," said Sahak Manuelian, managing director of global equity trading at Wedbush Securities in Los Angeles.