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By Sinéad Carew and Yoruk Bahceli
NEW YORK/LONDON (Reuters) -World stocks lost ground while U.S. Treasury yields had mixed reactions and the dollar gained some ground in choppy trading on Wednesday after the Federal Reserve left interest rates unchanged and warned of higher inflation and labor market risks.
The U.S. central bank held rates steady, in line with expectations. It said the economy continued to expand at a solid pace but also cited rising risks of higher inflation and unemployment as policymakers grapple with the impact of U.S. President Donald Trump's tariff policies.
The risks of higher unemployment and higher inflation left the Fed with almost no good short-term options, said Julia Hermann, global market strategist, New York Life Investments.
"Their ability to preemptively cut rates to shore up economic growth is constrained by upside inflation risks, and then, conversely, their ability to preemptively hike rates to reduce inflation risk is constrained by downside risk to growth. So it's a stagflation conundrum," she said.
"We expect to see meaningful easing from the Fed only in the scenario that economic growth figures really disappoint."
U.S. Treasury Secretary Scott Bessent and chief trade negotiator Jamieson Greer are scheduled to meet China's top economic official for talks at the weekend. It could be the first step to agreement after Trump ignited a trade war with the world's No. 2 economy last month.
Bessent said his sense is the meeting in Switzerland "will be about de-escalation," while China sounded more guarded and cited a proverb about actions speaking louder than words.
On Wall Street, at 02:50 p.m. the Dow Jones Industrial Average rose 154.17 points, or 0.38%, to 40,983.17, the S&P 500 fell 8.93 points, or 0.16%, to 5,597.98 and the Nasdaq Composite fell 109.97 points, or 0.62%, to 17,579.69.
MSCI's gauge of stocks across the globe fell 1.47 points, or 0.17%, to 840.44. Earlier the pan-European STOXX 600 index closed down 0.54%.
In currencies, trading was choppy after the Fed statement and as the central bank chair Jerome Powell took questions from reporters.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro,
rose 0.13% to 99.64.
The euro was down 0.33% at $1.1331. Against the Japanese yen, the dollar strengthened 0.77% to 143.5.
In U.S. Treasuries, the yield on benchmark U.S. 10-year notes fell 3.3 basis points to 4.285%, from 4.318% late on Tuesday. The 30-year bond yield fell 3.2 basis points to 4.7809%.