U.S. stock move higher as Yellen speaks

U.S. stocks moved higher on Wednesday after the Federal Reserve left key interest rates unchanged and as Fed Chairwoman Janet Yellen reiterated policy makers’ commitment to watch the economic data.

“Market participant should not focus on the timing of the first rate hike. What’s more important is the entire trajectory of interest rates,” Yellen said during the press conference, adding there will be no mechanical rate hikes.

Yellen said Fed members haven’t yet decided if they’ll vote to raise rates this year, and the decision will depend on how the economy evolves.

The central bank moved closer to its first interest-rate increase in almost a decade, saying the economy has “expanded moderately”. The Fed’s so-called dot-plot suggests it still intends to raise rates twice before the end of the year.

Live blog and video of Fed decision and Janet Yellen news conference

The S&P 500 SPX, +0.43% rose 10 points, or 0.5%, to 2,106. The Dow Jones Industrial Average DJIA, +0.40% gained 85 points, or 0.5%, to 17,989. The Nasdaq Composite COMP, +0.40% added 23 points, or 0.5%, to 5,078.

Sean Lynch, co-head of global equity strategy at Wells Fargo Investment Institute, noted that relatively muted reaction in the stock market is due to the fact that policy stayed unchanged.

“We still believe September is the first possible month to raise rates, because that’s when Janet Yellen holds the news conference. Since the Fed has been so transparent, it would not want to raise rates and not address it,” Lynch said.

Lynch noted the economic backdrop is favorable for large-cap stocks over the long run, since the economy is improving.

After a strong May jobs report, economists are increasingly pointing to September for the first Fed move, while market participants, according to the CME Group’s FedWatch tool, are pricing the probability of the first rate hike around December.

Marc Pfeffer, senior portfolio manager at CLS Investments, noted that most investors are betting on a September or December rate hike and aren't pricing in the possibility of a rate increase in July, which he believes is possible.