Stocks rise as Fed boosts inflation fight

Stocks rose sharply Wednesday after Federal Reserve officials concluded their December meeting with an announcement that they would take steps to combat inflation by pulling back more quickly on their efforts to support the economy.

The S&P 500 closed 1.6 percent higher, swinging from a small loss to a sharp gain in the minutes after the Fed announced that it would cut its purchases of bonds — a measure meant to keep cash flowing through the financial system — by twice as much each month as it had previously announced. The updated pace will set the timeline to end those purchases by March, a prerequisite to the Fed using its more powerful tool to control the economy: raising its benchmark interest rate.

While the quicker taper and the prospect of higher interest rates soon would normally dampen enthusiasm for stocks, investors were unbothered by the Fed’s plans, which will allow the central bank to address persistent price increases sooner rather than later.

“The markets are choosing the best of the scenarios that’s on the table, and at this point in time, two to three rate hikes next year and bond-buying ending in March is the best scenario for the current situation,” said Craig Erlam, a senior analyst at Oanda, a foreign currency exchange and brokerage firm. “The Fed is showing that it’s no longer ignoring inflation or casting it to one side in favor of growth.”

The Fed has been growing wary of an unceasing rise in consumer prices that it had previously described as a transitory result of the economic upheaval wrought by the pandemic. Rising rates would help cool off the economy and slow spiraling prices by making it more expensive for consumers and companies to borrow.

Following the announcement, yields on 10-year U.S. Treasury notes, a bench mark for borrowing costs across the economy and a measure of the outlook for growth, climbed to 1.46 percent from 1.45 percent. Yields move opposite prices.

Oil prices continued to drop Wednesday, with the U.S. crude benchmark falling more than 1 percent to about $70.87 a barrel, and shares of energy companies such as Occidental Petroleum and Devon Energy dropped. Those losses were pared somewhat as oil prices recouped the worst of their losses later in the day.

Also lower were shares of travel and tourism companies, which have become a barometer of sentiment about the pandemic. Carnival Corp. fell more than 1 percent, and Marriott International shares were down about 1.8 percent.

Pfizer was among the best performers in the S&P 500; the vaccine maker’s shares were up about 5.9 percent.