Stocks Climbed Again, Buoyed by Chipmakers Ahead of the Fed’s Policy Decision

Stocks climbed again on Tuesday, with chipmakers leading the session as they recover from a sharp sell-off from the past weeks.

The Dow Jones Industrial Average edged up 0.03%, while the S&P 500 did so 0.60%. The tech-heavy Nasdaq Composite overperformed, jumping 1.18%. Broadcom, Micron and Advanced Micro Devices were among the names that led the index higher.

Traders will now look at the Federal Reserve's policy decision on Wednesday, when the central bank is expected to leave rates unchanged, offering borrowers a reprieve after September's increase. But with inflation gathering momentum and the economy showing few signs of weakening, another hike could follow before policymakers are ready to declare their work finished.

The expected pause, however, comes ahead of government reports that could strengthen the argument for further tightening. Data scheduled for Thursday are projected to show faster inflation in September and stronger economic growth in the third quarter, supported by consumer spending and business investment tied to artificial intelligence.

Economists expect the annual increase in the personal consumption expenditures price index, the Fed's preferred inflation measure, to reach 3.6%, up from 3.4% in August. Higher gasoline prices linked to the conflicts in the Middle East account for part of that acceleration, but price pressures have also spread to airfares, rents and computers.

That broader increase complicates the Fed's effort to bring inflation back to its 2% target. However, September's unemployment rate stood at 4.2%, while weekly applications for unemployment benefits remained exceptionally low.

The main reason to wait lies in the bond market. After September's rate hike, the yield on the 10-year Treasury climbed toward its highest levels in nearly 25 years, threatening to restrain activity more sharply than officials intended.

Higher Treasury yields can raise financing costs for households and businesses, effectively doing some of the Fed's work. New York Fed President John Williams and Fed Vice Chair Philip Jefferson subsequently indicated that policymakers could wait for additional evidence before deciding their next move.

But that rationale became less straightforward late last week, when bond yields retreated during a stock selloff driven by concerns about the sustainability of AI demand. An easing in financial conditions could weaken the case for an extended pause.