Markets cheer after Powell downplays even larger rate hikes
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 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 three-quarters of a percentage point at its next meeting in June.
The S&P 500 climbed 3%, its best day 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 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 press conference.
The comments came shortly after the Fed said it raised its benchmark short-term interest rate by a halfpercentage point, it’s 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 struck 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 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 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.
The central bank also announced that it will start reducing its huge $9 trillion balance sheet, which consists mainly of Treasury and mortgage bonds, starting June 1.
The market’s gains were widespread Wednesday. Roughly 85% of the stocks in the S&P 500 notched gains, with technology companies powering much of the advance. Apple rose 4.1%.
Energy stocks were among the biggest gainers following a 5.3% increase in the price of U.S. crude oil after Europe took a step closer to placing an embargo on Russian oil as that country continues its war against Ukraine.
The Fed’s move on interest rates comes as inflation puts more pressure on businesses and consumers.