Stocks turn higher after Fed hints at slower rate hikes

Federal Reserve System,In afternoon trading on Wednesday, stocks rose substantially and Treasury yields plunged after the Federal Reserve signalled it would pause the rate of interest rate hikes.

As expected, the central bank also announced its fourth consecutive three-quarters of a percentage point extra-large rate increase in an effort to combat the highest inflation in decades.

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Markets, who were concerned the current pace of rate hikes could slow the economy so much that it enters a recession,

welcomed the Fed’s indication that it could ease back on the rate-increase programme.

As of 2:30 PM Eastern, the S&P 500 was up 0.7%.

Federal Reserve System The Nasdaq composite increased 0.7% and the Dow Jones Industrial Average gained 338 points,

or 1%, to close at 33,004. Prior to the delivery of the Federal Reserve’s interest rate policy statement at 2 p.m. Eastern, all of the indices had been down for the majority of the day.

Treasury yields on long terms decreased. Shortly before the Fed made its announcement, the yield on the two-year Treasury, which frequently tracks market expectations of upcoming Fed action, decreased to 4.45% from 4.55%.

With the Fed’s action, the benchmark short-term rate reached its highest level in 15 years, fluctuating between 3.75% and 4%. It was the central bank’s sixth rate increase of the year, a trend that has increased the cost of consumer and commercial loans overall and raised the possibility of a recession.

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However, the Fed hinted in a statement that it would soon switch to a slower rate of rate rises. It declared that it will evaluate the overall effects of its significant rate hikes on the economy in the months to come. It stated that it takes time for rate increases to fully impact inflation and growth.

According to Gargi Chadudhuri, head of iShares Investment Strategy, Americas,

“we believe that today’s decision opens the door for a 0.5% raise at the December 14th FOMC meeting, data allowing.”

At its final meeting of the year in December, investors will be watching for any cues regarding the central bank’s next move.

Whether inflation slows down from its highest levels in four decades will have a significant impact on the Fed’s future course. Wall Street is worried about how inflation will hurt consumers and businesses, and there are growing concerns that the Fed could slow the economy too much and trigger a recession.

The markets prefer predictability, which the Fed does not provide,

according to Ryan Grabinski, managing director of investment strategy at Strategas, a Baird subsidiary.

Powell has forewarned that the effort by the central bank to combat inflation will probably cause “some pain.”

The employment market is a major focus of this week’s economic data, which Wall Street has been keenly monitoring. Despite inflation, it has remained robust, which is interpreted as an indication that the Fed will need to continue being active in its battle against high prices.

The report comes after the government released Tuesday hotter-than-anticipated data on job opportunities.

It kind of confirms that the Fed still needs to do more work, according to Grabinski.

Stocks turn higher after Fed hints at slower rate hikes

With the government’s weekly unemployment report on Thursday and a larger monthly jobs report on Friday, investors will receive additional employment data. In order to better understand the impact of inflation on corporate profits and outlooks,

they have been closely monitoring the most recent round of company earnings. So far, it’s been a real mixed bag.

Stocks turn higher after Fed hints

Following the Fed statement, the majority of the S&P 500’s 11 sectors saw increases,

with banks, health care providers, and technology stocks accounting for the majority of the gains.

After increasing its earnings prediction following a solid third quarter, drugstore operator CVS climbed 4.5%. After exceeding Wall Street’s third-quarter profit and sales projections, casino operator Caesars Entertainment saw a 6.4% increase in stock.

Vacation rental market for short stays After informing investors that the growth in bookings will decrease in the fourth quarter, Airbnb’s stock dropped 8.3%. Estee Lauder, a manufacturer of cosmetics, fell 5.4% after lowering its earnings prediction due to COVID-19 lockdowns in China and inflation hurting sales.

Markets in Europe were mostly down while those in Asia were generally higher.

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