WALL STREET DIGESTS WELL THE FED RATE HIKE
NEW YORK (Archyde.com) – The New York Stock Exchange ended higher on Wednesday after an expected Federal Reserve rate hike and signs of progress in talks between Moscow and Kyiv on the 21st day of Russia’s invasion of Ukraine.
The US Federal Reserve (Fed) announced a quarter-point hike in its main key rate and said it plans to raise it to between 1.75% and 2% by the end of the year, adopting a deliberate tone offensive against inflation.
New Fed forecasts suggest it could raise rates again at each of six scheduled meetings by the end of December and that the fed funds rate could reach 2.8% by the end of 2023, a level above that of 2.4% from which the central bank estimates that it would slow down growth.
In its statement, the Federal Open Market Committee (FOMC), its monetary policy committee, underlines the great uncertainties to which the conflict in Ukraine and the health crisis expose the economy but adds that further rate hikes will be “appropriate” in the coming months.
The Dow Jones Industrial Average gained 1.55%, or 518.76 points, to 34,063.1 points.
The broader S&P-500 gained 95.41 points, or 2.24%, to 4,357.86 points.
The Nasdaq Composite advanced for its part by 487.93 points (3.77%) to 13,436.55 points.
The three major indices, which had previously benefited from developments in the talks between Moscow and Kyiv, despite the ongoing war in Ukraine, tipped briefly into the red on the announcement of the rate hike two hours before the close, before to recover and finish in positive territory.
Some analysts reacted cautiously to the decisions of the US central bank.
“It looks like a Fed that intends to cause recession in order to get rid of the inflation problem. It’s as short-sighted as when it said a year ago that inflation was transitory,” he said. Scott Ladner of Horizon Investments in Charlotte, North Carolina.
“I wish Jay Powell (the Fed Chairman, editor’s note) and company good luck because they are not going to get close to the goal they set for themselves, unless they push a lot of people out of work. Because that’s what’s going to happen, because we’re going to have a recession,” added Joseph LaVorgna, chief economist at Natixis in New York.
Jim Paulsen, strategist at Leuthold Group in Minneapolis, however, said many investors might just be relieved to see the Fed take action.
“To finally hear the Fed ‘talk and act’ to fight inflation is soothing for the investment community and for the real economy as prices rise,” he said.
Economic data suggests that tighter monetary policy is often accompanied by strong stock price gains. The S&P 500 averaged a 7.7% rise in the first year of the Fed’s rate hike, according to a Deutsche Bank study of 13 hike cycles since 1955.
(Reporting Sinéad Carew, Lewis Krauskopf, Herb Lash and Stephen Culp in New York, Devik Jain and Bansari Mayur Kamdar in Bangalore; written by Jean-Stéphane Brosse)