Stocks rise as Fed sees inflation ease

NEW YORK – Wall Street climbed Wednesday to its best level since the summer following the latest hike to interest rates by the Federal Reserve, which said it’s finally seeing improvements in inflation.

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

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

But he also said, “We can now say, I think for the first time, that the disinflationary process has started.” That got Wall Street thinking of no more 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 officer at Northern Trust Wealth Management. “Anyone that had taken a bet that the Fed was going to come out hard on financial positions lost that bet.”

One area influencing expectations for the Fed is the job market, which has remained resilient. While strength there helps workers, it could lead to too-high gains in wages that give inflation more fuel.

Reports on Wednesday gave a mixed picture on hiring. Private payrolls rose by 106,000 in January, according to ADP. That’s a slowdown from a month earlier and was below economists’ expectations.

But a separate government report said the number of job openings rose to 11 million in December, better than expected.