The S&P 500 closed higher on Wednesday after some choppy trading following a US Federal Reserve interest rate hike and its signals that more hikes will be needed to fight inflation, prompting pandemic-era easing monetary gains. The policy will expire.
The US Central Bank announced a quarter-percentage-point increase in its benchmark overnight rate, as was widely expected, but estimates its rate will hit between 1.75% and 2% by the end of the year, according to some investors. Appeared more hawkish than expected.
While the US central bank flagged the economy’s enormous uncertainty from the war between Russia and Ukraine and the ongoing COVID-19 crisis, it said an “ongoing increase in the target federal funds rate” would be justified “to contain the highest inflation”. “. The country has seen in 40 years.
Market analysts reacted with caution to the Fed’s announcement.
“This looks like a Fed intending to create a recession to address the inflation problem and it is seen as temporary calling inflation a year ago,” said Scott Ladner, chief investment officer, Horizon Investments. , Charlotte, North Carolina.
Joseph LaVorgna, chief economist for the US at Natixis in New York, was also concerned about the Fed’s impact on the economy.
“They’re going to try to be aggressive here in raising rates. I wish Jay Powell and company the best because they’re not going anywhere near unless they’re willing to throw a lot. People out of jobs Done, because that’s what’s going to happen. Because we’re going to have a recession. It’s forecasting a recession,” he said.
“I just don’t see the Fed being able to engineer the kind of tightening that is inflationary demand destruction right now.”
Jim Paulsen, chief investment strategist at The Leuthold Group in Minneapolis, said many investors may be relieved that the Fed is taking action.
“Hearing the Fed finally ‘saying and acting’ to tackle inflation is somewhat cool for the investment community, and Main Street grapples with high inflation.”
According to preliminary data, the S&P 500 closed 96.45 points, or 2.26%, up at 4,358.90, while the Nasdaq Composite gained 491.50 points, or 3.80%, to 13,440.12. The Dow Jones Industrial Average rose 521.10 points, or 1.55%, to 34,065.44.
Historical data shows that tighter monetary policy is often accompanied by tangible gains in stocks. The S&P 500 has returned an average of 7.7% in the first year after the Fed raised rates, according to a Deutsche Bank study of 13 hiking cycles since 1955.
Shares were rallying ahead of a Fed statement as talks with both Moscow and Kyiv on Ukraine’s position outside NATO raised hopes on Wednesday of a possible breakthrough after three weeks of war.
The global mood was lifted earlier by China’s promise to provide more stimulus to the economy and stabilize markets.