The S&P 500 rose 1.1% after Fed Chairman Jerome Powell said in a highly anticipated speech that it was time to cut interest rates from a two-decade high. The index came within 0.6% of its all-time high hit last month, recouping virtually all losses from a brief but scary summer slump.

The Dow Jones Industrial Average rose 462 points, or 1.1 percent, closing above 41,000 for the first time since its own record in July, while the Nasdaq Composite gained 1.5 percent.

Powell’s speech marked a sharp turnaround for the Fed after it began raising interest rates two years ago when inflation was rising to generational highs. The Fed’s goal was to make credit so expensive for U.S. households and businesses that it would slow the economy and dampen inflation.

While Powell was keen to stress that the job is not yet complete, he used the past tense to describe many of the conditions that drove inflation higher after the pandemic, including a labor market that is “no longer overheated.” That means the Fed can now devote more time to its other dual mission: protecting an economy that is slowing but has so far exceeded many recession predictions.

“It is time to adjust policy,” Powell said. “The direction is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the allocation of risks.”

In the second part of his statement, he withheld some details that Wall Street was keen to hear.

Treasury yields in the bond market had already fallen sharply since April on expectations that the Federal Reserve would cut its benchmark interest rate next. The only question was how much the Fed would cut and how quickly it would act.

One danger is that traders have set their expectations too high, as they have often done in the past. Traders think it is very likely that the Fed will cut its benchmark interest rate by at least one percentage point by year-end, according to data from CME Group. That would require the Fed to go beyond the traditional quarter-percentage-point move at least once in its three remaining meetings in 2024.

If their predictions are wrong, which also happens regularly, it could mean that Treasury yields have already fallen too far since they began their decline in the spring. That, in turn, could put pressure on all types of assets. On Thursday, for example, the S&P 500 posted its biggest loss in more than two weeks after Treasury yields rose.

“As usual, we will be eagerly awaiting the next data point and how the Fed will interpret the data,” said Brian Jacobsen, chief economist at Annex Wealth Management.

At least on Friday, Powell’s speech helped spark a major rally on Wall Street.

Smaller stocks in the Russell 2000 rose 3.2 percent, leading the market. Smaller companies can benefit more from lower interest rates because they need to borrow to grow.

In the S&P 500 index of large companies, more than 85 percent of stocks rose. The strongest upward push came from Nvidia, which rose 4.5 percent.

Most other companies in the S&P 500 have, as usual, reported better-than-expected earnings so far this earnings season.

Ross Stores rose 1.8 percent after beating analysts’ earnings and revenue estimates last quarter. But CEO Barbara Rentler also said the retailer’s low- and middle-income customers continue to feel the pressure of high prices across the economy, even as inflation has eased, a concern many CEOs have voiced recently.

This offset a 8.2 percent drop at Red Robin Gourmet Burgers, which reported an even larger than expected loss for the last quarter. The reason given was a slowdown in the entire restaurant industry.

Overall, the S&P 500 rose 63.97 points to 5,634.61. The Dow jumped 462.30 to 41,175.08 and the Nasdaq Composite rose 258.44 to 17,877.79.

In the bond market, the yield on 10-year U.S. Treasury notes fell to 3.79 percent from 3.86 percent late Thursday. The yield on two-year U.S. Treasury notes, which is more closely tied to expectations of Fed action, fell to 3.91 percent from 4.01 percent late Thursday.

On foreign equity markets, indices rose slightly in Europe after mixed results across Asia.

The Nikkei 225 rose 0.4 percent in Tokyo after Bank of Japan Governor Kazuo Ueda indicated that there could be further, albeit gradual, interest rate hikes.

AP business writers Yuri Kageyama and Matt Ott contributed.