Wall St. uplifted by Powell’s remarks

The Dow Jones industrial average surged more than 900 points and the Standard & Poor’s 500 index had its biggest gain in two years Wednesday after Federal Reserve Chair Jerome H. Powell downplayed the likelihood of an even larger interest rate hike after announcing the sharpest rate increase since 2000.

The remarks, which came after the Fed announced its decision to raise its key interest rate by double the usual amount, allayed concerns that the central bank was on its way to a massive increase of threequarters of a percentage point at its next meeting in June.

The S&P 500 climbed 3%, its best one-day gain since May 2020. The benchmark index is now up 4.1% this week, which represents roughly half its monthly loss in April. The Dow jumped 2.8% and the Nasdaq composite climbed 3.2%. The indexes had all briefly been in the red earlier in the day.

Bond yields fell after the Fed’s announcement. The yield on the two-year Treasury

dropped to 2.64% from 2.78% late Tuesday, an unusually large move. The yield on the 10-year Treasury, which influences mortgage rates, fell to 2.93% from 2.96%. It had initially jumped to 3.01% until Powell’s remarks during a news conference.

The comments came shortly after the Fed said it raised its benchmark shortterm interest rate by half a percentage point, its most aggressive move since 2000, and signaled further large rate hikes ahead. The increase raised the Fed’s key rate to a range of 0.75% to 1%, the highest point since the pandemic hit two years ago.

The Fed also announced details of how it will start reducing its huge holdings of Treasury debt and mortgage-backed securities, a tool the central bank has used to help keep long-term interest rates low.

The S&P 500 rose 124.69 points to 4,300.17. The Dow climbed 937.27 points to 34,061.06. The Nasdaq gained 401.10 points to close at 12,964.86.

Smaller-company stocks also posted solid gains. The Russell 2000 rose 51.07 points, or 2.7%, to 1,949.92.

The latest move by the Fed had been widely expected, with markets steadying this week ahead of the policy update, but Wall Street was concerned that the Fed might elect to raise rates by three-quarters of a percentage point in the months ahead.

Powell eased those concerns, saying the central bank is “not actively considering” such an increase.

The VIX, an index that measures how worried investors are about upcoming drops for the S&P 500, fell about 11%, one of its biggest drops this year, after Powell’s remarks.

Earlier, Powell also said the economy could make it through rate increases without falling into a recession.

“The economy is strong and well positioned to handle tighter monetary policy,” he said, though he cautioned “it’s not going to be easy.”

Investors are worrying about whether the Fed can slow the economy enough but not so much as to cause a downturn. Still, the market cheered the Fed’s latest moves.

“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 of investment strategy at E-Trade from Morgan Stanley.