The US stock market recovered strongly on Wednesday afternoon after the Federal Reserve raised interest rates for the first time since 2018 and announced a series of additional hikes.
The Fed raised its key interest rate by a quarter of a percentage point to a target range of 0.25 percent to 0.5 percent. The move by the US central bank was widely expected, although a member of the bank’s committee called for a larger increase of half a point.
Shares initially hesitated at the announcement before rallying sharply after Fed Chairman Jay Powell discussed the central bank’s actions in a news conference.
The S&P 500 stock index closed 2.2 percent higher, building on Tuesday’s gains to record the largest two-day rise since April 2020. The tech-heavy Nasdaq Composite Index rose 3.8 percent, the largest one-day rise since November 2020.
The stock market has weakened in recent weeks as investors worry about the impact on the global economy of the Russian war in Ukraine and the resulting surge in energy and commodity prices.
Marko Kolanovic, a strategist at JPMorgan Chase, said: “We think it’s important to remember what path we were on before the [Ukraine] crisis began as the global economy was on track to accelerate strongly as the Omicron wave reopened, with factory output soaring, inventory leaning and a recovery in mobility and the services sector. Despite the current tumultuous environment, we believe that a lot of risk has already been priced in, sentiment is depressed and investor positioning is low.”
Shortly after the Fed’s announcement, 10-year Treasury yields hit their highest level in nearly three years before falling to 2.17 percent — a slight increase for the day, but below the level before the announcement of the Fed. Fed. Bond yields fall when prices rise.
In addition to Wednesday’s move, Fed officials forecast six further rate hikes this year. Signs that they will raise interest rates decisively this year and next had prompted many traders to lower their expectations for how high inflation would be in the next decade.
The five-year breakevens, which measure how high investors expect inflation to rise in five years, fell 0.12 percentage points to 3.4 percent, the largest one-day decline since November.
Global supplies were pushed up earlier in the day after news that Ukraine and Russia were making “significant progress” in negotiations over a ceasefire and a possible Russian withdrawal if Kiev declares neutrality.
Market sentiment was also bolstered by a statement from top Chinese official Liu He, who said Beijing would take steps to “stimulate the economy in the first quarter”.
The European regional Stoxx 600 stock index rose 3.1 percent, Germany’s Xetra Dax 3.8 percent, while London’s FTSE 100 rose 1.6 percent.
Hong Kong’s Hang Seng stock index closed 9.1 percent higher as markets in the Asia-Pacific region rallied. The CSI 300 index of mainland Chinese stocks rose 4.3 percent and the Nikkei 225 in Tokyo by 1.6 percent.
Some investors view the short-term rebound in equity markets as fragile, jeopardized by the unpredictability of the war in Ukraine and the tightening of monetary policy by central banks to deal with high inflation. The Stoxx remains down more than 8 percent this year, while the Dax lost about 9 percent.
The Chinese economy continues to be affected by the country’s “zero-covid” policies, which have led to widespread social restrictions and trade disruptions. Shanghai and Shenzhen, two crucial trade hubs, have been partially shut down as Chinese companies grapple with Western sanctions against Russia that are pushing up the prices of energy, metals and agricultural commodities.
Oil prices continue their recent decline, impacted by both easing tensions in Ukraine and concerns that the return of the coronavirus lockdowns in China – the world’s largest oil importer – could dampen demand.
The international benchmark Brent crude, which approached $140 a barrel earlier this month, fell 1.9 percent to $98.02.
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