Stocks Climb As Fed Raises Interest Rates

US stocks climbed and bond yields jumped Wednesday after the Federal Reserve officially said it would raise interest rates for the first time since 2018.

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The S&P 500 was up 1.3% in recent trading. The tech-focused Nasdaq Composite advanced 2.4%, and the Dow Jones Industrial Average rose 0.5%. The Indexes initially Pared their gains in the wake of the Fed’s announcement before rebounding during Chairman Jerome Powell’s news conference.

The Fed raised interest rates by a quarter-percentage-point as officials look to keep the economy from overheating and reduce inflation. New projections show that now officials expect the fed-funds rate to rise to at least 1.875% by the end of the year and to around 2.75% by the end of 2023. That implies a total of seven-quarter-percentage-point increases year and more next year.

“It seems very much like they wanted to send a message that they’re fighting inflation and they’re going to fight it fast and get it under control,” said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research.

In recent weeks, some investors had lowered their forecasts for rates rising this year because of the Ukraine crisis. The central bank is navigating an unusually complex environment of a tight labor market, supply disruptions, spiraling inflation, Russia’s Invasion of Ukraine and Covid-19 lockdowns in China — the latter two of which are likely to compound inflationary and supply-chain issues.

The Fed’s interest rate increase on Wednesday marks the end of a historic wave of stimulus enacted while the Covid-19 Pandemic was first spreading through the US The Pandemic put a dead to a yearslong bull market in stocks and tipped the economy into a recession. The Fed’s stimulus helped the economy bounce back faster than many had expected. Now, investors are faced with a different challenge: inflation that’s at a 40-year high. Some are even worried about a Looming recession.

The prospect of the Fed interest rate increases have roiled markets for months. The Nasdaq Composite is now on track for its longest bear market since the financial crisis. The S&P 500 is down around 10% from its high.

Bond yields rose after the announcement. The yield on the benchmark 10-year Treasury note climbed to 2,192% from 2,160% on Tuesday. Yields and prices move inversely. The sharp climb in bond yields reflects investors’ growing bets that Russia’s Invasion of Ukraine will not slow the momentum toward higher interest rates.

US retail-sales data for February showed increased spending from the month prior as households adapt to the Crosscurrents of a strong laboratory market, falling coronavirus cases and inflation running at the highest annual rate in 40 years.

Traders work at the New York Stock Exchange.


Photo:

Xinhua / Zuma Press

Moves in the oil market were muted as investors weighed whether lockdowns in some Chinese cities will sap demand for energy even as Russia’s Invasion of Ukraine has bolstered concerns of supply disruptions. Brent-crude Futures, the international benchmark, edged down 1.9% to $ 98.02 a barrel. Elevated oil prices have prompted concerns that the US and Europe could see sustained inflation and lower economic growth, as higher gas and energy prices eat away at household spending on other goods and services.

Chinese officials said they would “coordinate Pandemic prevention and control and economic development, keep the economy operating within a reasonable range and keep the capital market running smoothly,” according to a report by Xinhua, China’s state news agency. This helped Soothe some fears over an economic slowdown in China that would also sap growth globally.

Technology stocks led a blistering rebound in Chinese markets after supportive comments from Beijing policy makers. Hong Kong’s Hang Seng Index soared 9.1%, led by gains in technology stocks. China’s Shanghai Composite climbed 3.5%.

The KraneShares CSI China Internet ETF soared around 30% in trading after falling to a record low earlier in the week. The iPath Series B S&P 500 VIX Short-Term Futures Exchange-Traded Note fell around 5%, continuing the stretch of unusual trading.

“The bounceback in Chinese equities shows you how sensitive the markets are,” said Peter Garnry, head of equity strategy at Saxo Bank, noting wide swings in markets in recent weeks as investors watch Headlines on a number of events.

Overseas, the pan-continental Stoxx Europe 600 climbed 3.1%, led by a jump in its technology sector. Russia’s stock market remains closed through the rest of the week.

—Joe Wallace contributed to this article.

The Federal Reserve’s main tool for managing the economy is to change the federal funds rate, which can affect not only borrowing costs for consumers but also shape broader decisions by companies like how many people to hire. The WSJ explains how the Fed manipulates this one rate to guide the entire economy. Illustration: Jacob Reynolds

Write to Caitlin Ostroff at [email protected]

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