Wall Street responds positively to Fed

Investors see hope for easing of rate hikes after small boost

NEW YORK — Wall Street climbed Wednesday to its best level since the summer, an ascent that followed the latest hike to interest rates by the Federal Reserve, which said it’s finally seeing improvements in inflation.

The S&P 500 rallied back from an early 1 percent loss to rise 1 percent after Fed Chair Jerome Powell said the economy is on the path toward getting inflation lower. The Dow Jones Industrial Average erased a drop of 500 points to rise 6, while the Nasdaq composite jumped 2 percent.

As expected, the Fed raised its benchmark interest rate by 0.25 percentage points to its highest level since late 2007. It’s the smallest such increase in the Fed’s blizzard of rate hikes since March.

Much of Wall Street is hoping that cooling inflation since the summertime means the Fed may raise rates just a bit more before taking a pause and then possibly cutting rates toward the end of the year.

Powell said Wednesday that “ongoing increases” in interest rates will be needed to bring inflation down to the Fed’s target level. And he said it was still too early to declare victory over inflation.

But he also said, “We can now say, I think for the first time, that the disinflationary process has started.” That got Wall Street thinking about a future with no more rate increases.

“He had the opportunity to use his voice to tamp down market expectations, and he didn’t do it,” said Katie Nixon, chief investment officer at Northern Trust Wealth Management.

Others in the market are not as optimistic. One gloomy pathway for the economy is overlooked, said Rich Weiss, senior vice president at American Century Investments: one during the 1970s where inflation reignited after the Fed let up on interest rates too soon.

“We’re headed into a recession one way or the other, whether the Fed eases up on the brakes or not,” Weiss said. “So you might as well kill inflation while you’re doing it.”

Treasury yields fell as Powell spoke.

The two-year yield fell to 4.11 percent from 4.21 percent late Tuesday. The 10-year yield, which helps set rates for mortgages and other important loans, fell to 3.42 percent from 3.51 percent.

The S&P 500 rose 42.61 to 4,119.21, its highest close since August. The Dow gained 6.92 to 34,092.96, and the Nasdaq jumped 231.77 to 11,816.32.