Wall Street rallies in relief after Fed’s assurance on rates

NEW YORK — Wall Street rallied Wednesday following the Federal Reserve’s sharpest hike to interest rates since 1994, and its later assurance that such mega-hikes would not be common.

The S&P 500 climbed 54.51, or 1.5%, to 3,789.99 after whipping through roller-coaster trading immediately following the Fed’s latest move to fight inflation.

In equally topsy-turvy trading, Treasury yields eased in the bond market after Chair Jerome Powell seemed to soothe the market’s fears about an overly aggressive Fed by implying more modest rate increases may be coming later this year.

The Dow Jones Industrial Average swung between a gain of 647 points and a loss of nearly 180 before finishing with a gain of 303.70. It closed at 30,668.53, up 1%. The Nasdaq composite jumped 270.81, or 2.5%, to 11,099.15.

The market’s ebullience was a sharp turnaround from the worldwide rout that has dominated much of this year, which forced the S&P 500 into a bear market earlier this week. The fear has been that high inflation will push the Fed and other central banks to clamp the brakes too hard on the economy and create a recession. Wednesday’s gain was the first for the S&P 500 in six days.

Some analysts cautioned the rally could be short-lived given how deeply and broadly high inflation has seeped into the economy and how unsettlingly uncertain the future path is.

The Fed on Wednesday hiked its key short-term interest rate by three-quarters of a percentage point, triple the usual move. Powell said the Fed may consider another increase that big at its next meeting in July, but he also said such a hike is “an unusually large one” and not to expect it to be common.

The Fed is “not trying to induce a recession now, let’s be clear about that,” Powell said. He said Wednesday’s big increase was about the Fed speeding up the move to get interest rates back to normal, calling it “front-end loading.”

All kinds of investments, from bonds to bitcoin, have tumbled this year as high inflation forces central banks to swiftly remove supports propped underneath markets early in the pandemic.

Even if central banks pull off the delicate trick of slowing the economy just enough to stamp out inflation, without a recession, higher interest rates push down on prices for investments regardless. The hardest-hit have been the investments that soared the most in the easy-money era of ultralow interest rates, including highgrowth technology stocks and cryptocurrencies.

Treasury yields this week shot to their highest levels in more than a decade on expectations for a more aggressive Fed, though they eased Wednesday following Powell’s comments. A disappointing report showing that sales at U.S. retailers unexpectedly slumped in May from April contributed.