Wall Street Pauses as Investors Focus on Fed

U.S. stocks gained Wednesday ahead of an update on monetary policy from the Federal Reserve.

The Fed will issue a policy statement at 2 p.m. Eastern after the conclusion of its two-day meeting, and Fed Chairwoman Janet Yellen will lead a news conference. Investors are waiting for any indication from the central bank about when it could begin to raise short-term interest rates, which have been near zero since December 2008.

The Dow Jones Industrial Average rose 25 points, or 0.1%, to 17157. The S&P 500 index added two points, or 0.1%, to 2001 and Nasdaq Composite Index rose three points, or 0.1%, to 4555.

U.S. benchmarks extended a rally from the previous session, when Wall Street Journal chief economics correspondent Jon Hilsenrath said the Fed may continue to use the words "considerable time" to describe when it may raise rates, but qualify them.

Wednesday's gains also followed news that consumer prices fell 0.2% in August from a month earlier, marking the first monthly decline for the inflation gauge since April 2013. Economists had expected no change in overall consumer prices.

"If inflation isn't high, the Fed doesn't have to do anything" to tighten monetary policy, said Michael O'Rourke, chief market strategist at JonesTrading Institutional Services.

Mr. O'Rourke said markets will likely react to the outcome of today's meeting, but he doesn't expect the Fed's plans for its policy to change considerably.

"There's been so much hype over the language that there will be a reaction" from markets, he said. "But you shouldn't be expecting big changes in policy."

Investors and strategists say that the low interest-rate environment of recent years has helped contribute to gains in U.S. stocks, as it makes competing assets such as bonds less appealing. Investors are now weighing how an eventual increase in rates will affect stocks. The Fed is widely expected to raise interest rates sometime next year, but it is still unclear how fast those rates could rise.

The yield on the benchmark 10-year Treasury note fell to 2.577%, according to FactSet. Treasury yields rise as prices fall.

In other economics news, Asian stocks gained in reaction to the news that China will use a targeted stimulus measure in light of slower-than-expected growth. The stimulus will take the form of a 500 billion yuan ($81 billion) injection into China's five major state-owned banks. Materials shares, which are often seen as linked to growth in emerging economies, were the biggest gainers in the S&P 500, rising 0.7%.

Shares of home builders rallied after news that optimism in the sector jumped by more than expected in September, and a strong earnings report from the sector. The iShares U.S. Home Construction Index, which tracks the sector, rose 3%.

The National Association of Home Builders' housing-market index rose to 59, the highest level since 2005, while economists had forecast a rise to 55.5. And home-builder Lennar Corp. rallied 6.8% after posting better-than-expected earnings and revenue in its fiscal third quarter.

European shares rose, with the Stoxx Europe 600 Index up 0.6%. London's FTSE was little changed ahead of the Scottish independence referendum on Thursday.

In corporate news, activist firm Trian Fund Management LP has launched a campaign for the breakup of DuPont Co. Shares rose 4.2%.

In commodity markets, crude-oil futures fell 0.7% to $94.23 a barrel. Gold futures were little changed at $1,236.90.