Wall St. cheered by Powell remarks
Technology companies led a broad rally for stocks on Wall Street on Wednesday as investors welcomed another interest rate increase by the Federal Reserve as a sign the central bank is ratcheting up its campaign to fight surging inflation.
In a widely expected move, the central bank raised its key interest rate by three-quarters of a point, lifting the rate to the highest level since 2018.
At a news conference, Chair Jerome H. Powell suggested the Fed’s rate hikes have already had some success in slowing the economy and possibly easing inflationary pressures. Some on Wall Street saw that as a signal the Fed may not have to raise rates as aggressively in coming months, triggering a rally in the final hour of regular trading.
The Standard & Poor’s 500 index climbed 2.6%, and the tech-heavy Nasdaq composite surged 4.1%, its biggest gain in more than two years. The Dow Jones industrial average rose 1.4%. Smaller-company stocks also gained, lifting the Russell 2000 2.4%.
Bond yields turned broadly lower after the Fed’s announcement. The twoyear Treasury yield, which tends to move with expectations for the Fed, fell to 2.98% from 3.06% late Tuesday. The 10-year yield, which influences mortgage rates, fell to 2.77% from 2.79%.
Rate increases such as Wednesday’s, the fourth so far this year, make borrowing more expensive and slow the economy. The hope is that the Fed and other central banks can deftly find the middle ground where the economy slows enough to whip inflation but not enough to cause a recession.
Charlie Ripley, senior investment strategist at Allianz Investment Management, called the increase “warranted.”
“That being said, recent economic data is now introducing a higher degree of uncertainty around the path of policy as we move forward from here,” Ripley said.
The S&P 500 rose 102.56 points to 4,023.61. The Dow gained 436.05 points to close at 32,197.59. The Nasdaq rose 469.85 points to 12,032.42, and the Russell 2000 picked up 43.09 points to end at 1,848.34. The indexes are now all on pace for a weekly gain, extending Wall Street’s strong July rally. The S&P 500 is up 6.3% so far this month.
It’s not uncommon for stocks to rally when the Fed issues a new interest rate policy statement, only to sink the next day.
Inflation remains at the forefront of investors’ minds, however.
Meanwhile, some parts of the economy, particularly the housing industry, are already slowing because of the rate increases. Sales of previously occupied homes slowed in June for the fifth month in a row as mortgage rates have climbed sharply.