May 24, 2022

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Stocks rise as Federal Reserve raises interest rates

Stocks rise as Federal Reserve raises interest rates

US stocks and bond yields jumped on Wednesday after the Federal Reserve officially said it would raise interest rates for the first time since 2018.

The S&P 500 is up 1.3% in recent trading. The technology-focused Nasdaq Composite advanced 2.4%, and the Dow Jones Industrial Average rose 0.5%. Indexes initially pared their gains in the wake of the Fed’s announcement before rebounding during Chairman Jerome Powell’s press conference.

The Federal Reserve raised interest rates by a quarter of a percentage point as officials look to prevent the economy from overheating and reduce inflation. The new projections show that most officials expect the federal funds rate to rise to at least 1.875% by the end of the year and to about 2.75% by the end of 2023. It indicates a total of seven increases of a quarter of a percentage point this year and more next year.

“It pretty much looks like they wanted to send a message that they are fighting inflation and that they are going to fight it quickly and bring it under control,” said Cathy Jones, chief fixed income strategist at the Schwab Center for Financial Research.

In recent weeks, some investors have lowered their expectations for an interest rate hike this year due to the Ukraine crisis. The central bank is navigating an extraordinarily complex environment of a tight labor market, supply turmoil, spiraling inflation, Russia’s invasion of Ukraine And the Covid-19 lockdown in ChinaThe latter two are likely to exacerbate inflation and supply chain problems.

Wednesday’s Fed rate hike marks the end of a historic wave of stimulus that was triggered while the Covid-19 pandemic was spreading for the first time across the United States. The stimulus from the Federal Reserve helped the economy recover faster than many expected. Now, investors face a different challenge: inflation, which is at its highest level in 40 years. Some even Concerned about the looming recession.

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The prospect of a Federal Reserve rate hike has turbulent markets for several months. The Nasdaq Composite is now on track for its longest bear market since the financial crisis. The S&P 500 is down about 10% from its high.

Bond yields rose after the announcement. The yield on the benchmark 10-year Treasury rose to 2.192% from 2.160% Tuesday. Yields and prices move inversely. The sharp rise in bond yields reflects investors’ growing bets on Russia’s invasion of Ukraine Momentum towards higher interest rates will not slow down.

US retail sales data for February Show an increase in spending from the previous month as households adjusted to the cross currents of a robust labor market, lower coronavirus cases and rising inflation The highest annual rate in 40 years.

Traders work on the New York Stock Exchange.


Photo:

Xinhua / Zuma Press

Moves in the oil market were muted as investors weighed whether shutdowns in some Chinese cities would reduce energy demand even as Russia’s invasion of Ukraine fueled fears of supply disruptions. Brent crude futures, the international standard, fell 1.9 percent to $98.02 a barrel. Higher oil prices have raised concerns that the United States and Europe may see sustained inflation and lower economic growth, as higher gas and energy prices undermine household spending on other goods and services.

Chinese officials said they will “coordinate epidemic prevention and control and economic development, keep the economy functioning within a reasonable range, and keep the capital market running smoothly,” according to a report released Wednesday by Xinhua News Agency. This helped allay some fears of an economic slowdown in China that would also dampen growth globally.

Technology stocks led a Sharp recovery in Chinese markets After supportive comments from policy makers in Beijing. Hong Kong’s Hang Seng Index rose 9.1%, led by gains in technology stocks. China’s Shanghai Composite rose 3.5%.

The KraneShares CSI China Internet ETF is up nearly 30% in trading after dropping to a record low earlier in the week. iPath Series B S&P 500 VIX Short Term Futures Trading Note It fell about 5%, continuing an extension of unusual trading.

“The bounce in Chinese stocks shows just how sensitive the markets are,” said Peter Garnery, head of equity strategy at Saxo Bank, noting wide volatility in markets in recent weeks as investors follow the headlines on a number of events.

Offshore, the Stoxx Europe 600 continental index rose 3.1%, led by a jump in the technology sector. Stock market in Russia still closed during the rest of the week.

Joe Wallace contributed to this article.

The Federal Reserve’s main tool for managing the economy is changing the federal funds rate, which can affect not only borrowing costs for consumers but also shape broader decisions by businesses such as how many people to hire. The Wall Street Journal explains how the Fed is manipulating this one rate to steer the entire economy. Illustration: Jacob Reynolds

write to Kaitlin Ostroff at [email protected]

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