The Dow is flat in volatile trading as traders weigh Fed update, Microsoft's earnings

The Dow Jones Industrial average gave up a gain after Federal Reserve Chairman Jerome Powell suggested there was plenty of room to raise interest rates before it would harm the economy.

The Dow Jones Industrial Average was last down about 20 points after rising as much as 500 points shortly after the Fed gave an update on interest rates. The S&P 500 was up by just 0.2%. The Nasdaq Composite added 1%, led by gains in Microsoft.

Stocks came off their highs and Treasury yields jumped to their highs after Powell said at a press conference there was "quite a bit of room" to raise rates before it would hurt the labor market. The comments likely disappointed traders expecting the central bank to raise rates by not that much this year.

The Fed said in a statement Wednesday following its policy group's January meeting that a quarter-percentage-point increase to its benchmark short-term borrowing rate could be coming soon, as market participants expected.

"With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate," the Federal Open Market Committee statement said. The Fed does not meet in February.

Stocks rose initially after that statement and before Powell began talking. But the market began to gyrate as Powell spoke, continuing a pattern of volatility this week in markets.

The Fed did indicate in a separate statement that it would begin shrinking its balance sheet after hiking rates, a further tightening action that many traders may have hoped the central bank would have held off doing right away.

Shares of banks, which typically benefit from higher interest rates, got a lift from the Fed update and supported the market. Morgan Stanley and JPMorgan both rose around 2%.

Investors also digested a strong quarterly report from Microsoft and other corporate earnings results.

Shares of Microsoft rose 5% after the company issued better-than-expected quarterly revenue guidance, boosting the three major indexes.

Microsoft's "conference call went well and ignited the market," Scott Redler of T3Live said. Whether the stock's rally holds "will tell us a lot about tech," he added.

Technology shares gained following Microsoft's earnings report. Apple, Amazon, Netflix and Nvidia all traded higher. Tesla shares added 5.7%, with the electric vehicle marker slated to report earnings after the bell.

On the downside, Boeing fell 2.6% after the aircraft maker reported positive cash flow for the first time since 2019, but it took a $3.5 billion pre-tax charge on its 787 Dreamliner program.

U.S. stocks are coming off a second consecutive roller-coaster trading session.

The Dow ended Tuesday lower, but was down as much as 818.98 points on the session and briefly traded up by as much as 226.54 points. Those moves came a day after the Dow recovered from a 1,115-point deficit to post a slight gain.

The S&P 500 and Nasdaq Composite also closed well off their session lows on Tuesday, but still lost 1.2% and 2.3%, respectively.

Recent market volatility is unlikely to deter the Fed from implementing as much as four or more interest rate hikes this year, market strategists say.

"It's premature to assume the latest volatility and weakness, in and of itself, will cause the Fed to blink (e.g., adjust the narrative)," Liz Ann Sonders, Charles Schwab chief investment strategist, said in a note.

All three major indexes are negative in January. The Nasdaq is in correction territory, down more than 14% from its intraday high.

—CNBC's Patti Domm contributed to this report.