US stocks close higher after Fed hikes rates, signals more hikes

The S&P 500 ended up more than 2%, while the Nasdaq technology index jumped nearly 4% on Wednesday, as investors played down nervousness after an interest rate hike by the U.S. central bank and its sign that more hikes would be needed to fight inflation, which ends the flexible monetary policy adopted at the beginning of the pandemic.

The S&P 500 index closed up 2.24% at 4,357.86 points. The Dow Jones rose 1.55% to 34,063.10 points. The Nasdaq Composite technology index rose 3.77% to 13,436.55 points.

The US central bank announced a 0.25 percentage point increase in its policy rate, as widely expected, but the projection that its rate would reach between 1.75% and 2% by the end of the year was more “ hawkish” (aggressive against inflation) than some expected.

While highlighting the enormous uncertainty facing the economy from the war between Russia and Ukraine and the ongoing Covid-19 crisis, the Fed said “continued increases” in interest rates “will be appropriate” to contain the highest inflation in 40 years.

While stocks returned gains made earlier and the S&P 500 and Dow Jones plunged into the red briefly after the central bank’s release, indexes stabilized as Fed Chair Jerome Powell began speaking at a press conference. press.

Jim Paulsen, chief investment strategist at The Leuthold Group in Minneapolis, said investors may have been relieved by an understanding that the central bank is taking action against rising inflation.

“Hearing the Fed finally ‘say and act’ to fight inflation somewhat calms the investment community and Main Street (real economy), which struggle with higher inflation,” he said.

But other market analysts were concerned about the risk that aggressive rate hikes could send the economy into a tailspin.

“It looks like a Fed looking to cause a recession to end the inflation problem, and that’s as short-sighted as calling inflation transient a year ago,” said Scott Ladner, chief investment officer at Horizon Investments, Charlotte, North Carolina.

Joseph LaVorgna, chief economist for the Americas at Natixis in New York, was also skeptical.

“They will try to be aggressive here in raising rates. I wish Jay Powell and company the best of luck, because they won’t even come close to what they think unless they’re willing to get a lot of people fired, because that’s what’s going to happen. Because we’re going to have a recession. This is a recession forecast,” he said.

“I just don’t see the Fed being able to project that kind of (monetary) tightening for what is now inflationary demand destruction.”