Major stock indexes closed significantly higher after Federal Reserve Chairman Jerome Powell said the central bank was not “seriously considering” raising interest rates in a three-quarter percentage point increase.
The S&P 500 jumped about 3% on Wednesday at 4 p.m. ET, the Dow Jones Industrial Average rose 933 points, or 2.8%, and the Nasdaq Composite rose 3.2%. All three indicators had fallen earlier in the day.
Stocks changed little at first after the Fed’s announcement That would raise interest rates by half a percentage point and start shrinking its $9 trillion asset portfolio next month. Investors were widely anticipating both decisions heading into the conclusion of the central bank’s policy meeting.
What surprised some is that Mr. Powell put an end to the notion that the Fed might raise interest rates by 0.75 percentage points at a future Fed meeting this year. Federal fund futures contracts, which traders use to track changes in interest rate expectations, had previously shown market prices with a 95% chance that the Fed would make such a move in June.
“There is a sense of relief,” said Christopher Smart, chief global strategist and president of the Barings Investment Institute.
Louis Fed President James Bullard recently indicated that the central bank raised its target interest rate by 75 basis points as part of a strong tightening effort in 1994, although he said he probably wouldn’t vote for an increase of that size.
With stocks and bonds volatile recently, many investors were concerned that the pace at which the Fed was tightening monetary policy would cause markets to falter. Others are grappling with concerns that the central bank, which is raising interest rates quickly in an effort to de-inflationmay inadvertently push the economy into a recession.
However, the Fed’s messaging helped ease investor anxiety, according to Mr. Smart.
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