FED HIKES KEY RATE — THEN STOCKS SOAR
NEW YORK — The Dow Jones Industrial Average surged more than 900 points and the S&P 500 had its biggest gain in two years Wednesday after Federal Reserve Chair Jerome Powell downplayed the likelihood of an even larger interest rate hike after announcing the sharpest rate increase since 2000.
The half-percentage-point increase in the Fed’s key short-term rate raised it to a range of 0.75% to 1%, the highest point since the pandemic struck two years ago. The move had been widely expected by Wall Street.
The Fed also announced that it will start reducing its huge $9 trillion balance sheet, made up mainly of Treasury and mortgage bonds. Reducing those holdings will have the effect of further raising borrowing costs in the economy.
But Powell also sought to downplay any speculation that the Fed might be considering a rate hike as high as three-quarters of a percentage point.
“A [three-quarters of a point] hike is not something that the committee is actively considering,” he said — a remark that caused stocks to jump.
The S&P 500 climbed 3%, its best day since May 2020. The Dow jumped 2.8% and the Nasdaq climbed 3.2%. The indexes had all briefly been in the red earlier.
Bond yields fell after the announcement. The yield on the 2-year Treasury dropped to 2.64% from 2.78% late Tuesday. The yield on the 10-year Treasury, which influences mortgage rates, fell to 2.93% from 2.96%.
Job openings are at a record high. There are two available jobs, on average, for each unemployed person.
“I see a strong economy,” Powell said. “Nothing about it says it’s close to or vulnerable to a recession.”
“It’s certainly heady days when the market doesn’t blink at the most aggressive rate hike in 22 years, but keep in mind this was extremely well-telegraphed and priced in,” said Mike Loewengart, managing director, investment strategy at ETRADE from Morgan Stanley.