Stocks, yields end higher after Fed raises rates

Stocks reversed an afternoon fade and closed broadly higher Wednesday after the Federal Reserve announced its first interest rate hike since 2018.

As Wall Street largely anticipated, the central bank announced it was increasing its key short-term rate by 0.25 percentage points. The Fed, which has kept its rate near zero since the pandemic recession struck two years ago, also signaled potentially up to seven rate hikes this year.

The move marks a shift in policy by the Fed away from maintaining ultra-low interest rates as it seeks to tame inflation, which is running at the highest level since the early 1980s. Rate hikes eventually result in higher loan rates for many consumers and businesses.

Stocks lost most of their early gains and bond yields rose sharply shortly after the 2 p.m. Eastern release of the Fed’s latest policy statement. The indexes wavered as Fed Chair Jerome Powell delivered remarks during a press conference before surging in the final hour of trading.

The S&P 500 rose 2.2%, the Dow Jones Industrial Average gained 1.5% and the Nasdaq composite climbed 3.8%, its biggest gain since November 2020.

Bond yields rose sharply after the Fed’s announcement. The yield on the 10year Treasury rose to 2.20%, then hovered at 2.17% by late afternoon. It was at 2.15% late Tuesday. The 2-year Treasury yield rose to 2% then eased back to 1.94%, still a big move from 1.85% a day earlier.

“The market got what it expected,” said Randy Frederick, vice president of trading & derivatives at Charles Schwab. “Interest rates need to be higher. Inflation needs to be under control, and the risk to everything is a lot greater from high inflation than it is from high interest rates.”

The Fed is trying to slow the economy enough to tamp down the high inflation sweeping the country, but not so much as to trigger a recession.

Theranos ex-president Balwani’s trial delayed

Opening arguments in the trial of former Theranos Inc. President Ramesh “Sunny” Balwani were postponed by the judge after someone in the courtroom was exposed to a person with COVID-19.

U.S. District Judge Edward Davila in San Jose said he will tell jurors today whether the trial will start Friday or next week. The trial has been slow to begin because jury selection took longer than expected.

Balwani is fighting the same conspiracy and fraud charges that Theranos founder Elizabeth Holmes faced at her trial, which ended with her being found guilty in January of defrauding investors in the bloodtesting startup.

The judge said in court Wednesday that the COVID-19 exposure was “limited” — and that the person in question has so far tested negative — but that he’s following Centers for Disease Control guidance.

Howard Schultz returns to lead Starbucks

Longtime Starbucks CEO Howard Schultz is returning to lead the company on an interim basis after the coffee giant’s current chief executive announced his retirement.

Kevin Johnson said he will retire next month after five years as president and CEO and 13 years at Starbucks. Johnson, a former executive at Microsoft and Juniper Networks, succeeded Schultz as CEO in 2017.

In an open letter to Starbucks’ employees, Johnson, 61, said he told the company’s board last year that he was considering retirement. His most obvious successor had been Roz Brewer, the company’s chief operating officer, but Brewer left the company in February 2021 to become the top executive at Walgreens.

Starbucks said its board has been engaged in “continuous CEO succession planning since last year and expects to name a permanent CEO by the fall. While Schultz leads the company, he will get $1 in compensation. Schultz, 68, is also rejoining Starbucks’ board.