The stock market moved higher in volatile trading on Wednesday after the Federal Reserve raised interest rates by 0.25% and signaled six additional hikes later this year, as the central bank looks to ease concerns about surging inflation and the economic impact of the Russia-Ukraine crisis.
Federal Reserve Chairman Jerome Powell.
Tom Williams/Pool via ASSOCIATED PRESS
Stocks initially pared back gains following the Fed’s announcement—with the Dow Jones Industrial Average at one point giving up a 500-point gain—before rebounding.
The Dow rose 1.4%, nearly 500 points, on Wednesday, while the S&P 500 gained 2% and the tech-heavy Nasdaq Composite 3.5%.
The central bank raised interest rates, by a quarter percentage point, for the first time since 2018, while Fed officials also predicted six additional rate hikes in 2022 (up from a previous forecast of three increases this year).
Markets initially got a boost Wednesday morning from hopes of a possible ceasefire agreement in the Russia-Ukraine war, with Ukrainian President Volodymyr Zelensky saying in an address on Tuesday that a deal was beginning to “sound more realistic,” while Russian Foreign Minister Sergei Lavrov expressed “hope” for an agreement.
The heavy fighting in Ukraine has weighed on markets since last month, and while Ukrainian forces have held off attacks on several major cities, the country continues to call for more aid from the West, with Zelensky addressing the U.S. Congress on Wednesday morning.
Oil prices, which have jumped in recent weeks due to the conflict between two major exporters, at one point surged to a multi-year high of $130 per barrel before moderating somewhat and now sitting at just below $100 per barrel.
“The main focus for Wednesday (by far) will be the Fed . . . although investors will also be watching for any updates out of the Russia-Ukraine peace talks,” though “more time” will be required for an agreement, says Vital Knowledge founder Adam Crisafulli. Stocks are falling after the Federal Reserve’s statement was “more hawkish than anticipated” due to an “accelerated pace of tightening” forecast for this year and next, he says.
What To Watch For:
Investor sentiment has grown increasingly bearish this month, with expectations for global economic growth plunging to their lowest level since the Great Financial Crisis of 2008, according to a recent Bank of America fund manager survey. Over half of those surveyed now predict that stocks will fall into a bear market this year and the U.S. economy will be plagued by stagflation—meaning high inflation and slow economic growth.
Federal Reserve’s Long-Awaited Rate Hike Is Here: Powell Announces 0.25% Increase (Forbes)
Most Wall Street Experts Now Predict Stagflation—Here’s What That Means For Investors And The U.S. Economy (Forbes)
Musk Challenges Putin To ‘Single Combat’ Over Ukraine—Russian Official Calls Him A ‘Little Devil’ (Forbes)