By DAMIAN J. TROISE and ALEX VEIGA, AP Business Writers
NEW YORK (AP) — The Dow Jones Industrial Average jumped more than 900 points and the S&P 500 posted its biggest gain in two years on Wednesday after Federal Reserve Chairman Jerome Powell downplayed the likelihood of a an even bigger hike in interest rates after announcing the biggest rate hike. since 2000.
The remarks, which came after the Fed announced its decision to raise its key rate to double the usual amount, eased concerns that the central bank was on course for a massive three-quarters of a percentage point hike in its next meeting in June.
The S&P 500 climbed 3%, its best day since May 2020. The benchmark is now up 4.1% this week, about half of its monthly loss in April. The Dow Jones jumped 2.8% and the Nasdaq 3.2%. The indices had all been briefly in the red earlier in the day.
Bond yields fell after the Fed announcement. The 2-year Treasury yield fell to 2.64% from 2.78% on Tuesday night, an unusually large move. The 10-year Treasury yield, which influences mortgage rates, fell to 2.93% from 2.96%. It had initially jumped to 3.01% until Powell’s remarks at a press conference.
The comments came shortly after the Fed said it had raised its benchmark short-term interest rate by half a percentage point, the most aggressive move since 2000, and announced further significant rate hikes to come. The increase took 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 begin trimming its huge holdings of Treasury debt and mortgage-backed securities, a tool the central bank has used to help keep interest rates down long. low term.
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.
Small company stocks also posted strong gains. The Russell 2000 rose 51.07 points, or 2.7%, to 1,949.92.
The Fed’s latest move was widely expected, with markets stabilizing this week ahead of the policy update, but Wall Street feared the Fed might decide to raise rates by three-quarters of a percentage point in the coming months. to come.
Powell allayed 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 S&P 500 declines, fell about 11%, one of its biggest falls this year, after Powell’s remarks.
Earlier, Powell also said the economy could survive rate hikes without falling into a recession.
“The economy is strong and well positioned to handle tighter monetary policy,” he said, while warning that “it won’t be easy.”
Investors are worried about whether the Fed can pull off the delicate dance to slow the economy enough to halt high inflation, but not so much as to cause a slowdown. Still, the market applauded the Fed’s latest moves.
“These are certainly heady days when the market isn’t blinking 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, Investment Strategy at E-TRADE. of Morgan Stanley.
The central bank also announced that it would start shrinking its massive $9 trillion balance sheet, made up mostly of treasury bills and mortgage bonds, from June 1.
Market gains were broad-based on Wednesday. About 85% of S&P 500 stocks posted gains, with technology companies fueling much of the advance. Apple rose 4.1%.
Energy stocks were among the biggest gainers after a 5.3% rise in the price of U.S. crude oil after Europe moved closer to an embargo on Russian oil as that country continues its war on the ‘Ukraine. Any embargo could strain oil supplies and push prices even higher. Exxon Mobil rose 4%.
The Fed’s aggressive move to raise interest rates comes as rising inflation puts increased pressure on businesses and consumers. Higher costs for energy and other raw materials have prompted many companies to raise prices and issue cautious forecasts to their investors. Wall Street and economists worry that rising prices for everything from food to gasoline and clothing will cause consumer spending to slow and dampen economic growth.
Concerns have increased with Russia’s invasion of Ukraine and its impact on energy and major food prices. China’s increasingly stringent lockdown measures due to rising COVID-19 cases have also added concerns about slowing economic growth due to supply issues and shipping backlogs. .
Wall Street is watching economic data closely for any signs of slowing inflation. Consumer prices jumped in March, but a measure of inflation that excludes food and energy posted its smallest monthly increase since September. It was a welcome sign for investors and more of the same in the months to come, concerns over cold inflation.
“If we can get a few more readings showing a slowdown in inflation, this could be the game that elicits some confidence,” said Ryan Detrick, chief market strategist for LPL Financial.
AP Business Writer Stan Choe contributed. Veiga reported from Los Angeles.
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