Stocks on Wall Street rose solidly in afternoon trading on Wednesday. after the Federal Reserve raised its key interest rate by three-quarters of a pointas widely expected, as the central bank steps up its campaign to quell rising inflation.
The Fed’s move, its second three-quarter point hike in a row, raises its short-term benchmark rate to the highest level since 2018.
Bond yields fell across the board. The two-year Treasury yield, which tends to move with Federal Reserve expectations, fell to 3.01% from 3.06% on Tuesday. The 10-year yield, which influences mortgage rates, fell to 2.74% from 2.79 percent.
Wall Street had correctly forecast the magnitude of the rise, which triples the usual rate and is the Fed’s fourth rate hike this year.
These increases make loans more expensive, which slows down the economy. The hope is that the Fed and other central banks can deftly find the middle ground where the economy slow enough to whip up inflation, but not enough to trigger a recession.
The central bank’s decision occurs when inflation has accelerated to 9.1%the fastest annual rate in 41 years.
“With inflation rising again in June, a 75 basis point hike was certainly warranted, and the Fed has done it.”said Charlie Ripley, senior investment strategist at Allianz Investment Management. “That said, recent economic data is introducing a greater degree of uncertainty around the path of policy as we go from here.”
Stocks have been choppy this week, after last week’s solid gainsmainly driven by better-than-expected corporate earnings reports.
Nevertheless, Inflation continues to be in the sights of investors. Markets spooked on Monday after the retail giant Walmart warned that its profits are being affected by the increase in the prices of foods and the gasolinewhich are forcing buyers to cut back on more profitable discretionary items, such as clothing.
The retailer’s profit warning in the middle of the quarter was rare and raised the concern of how the highest inflation of the last 40 years is affecting the entire retail sector.
Meanwhile, some parts of the economy are already slowing down because the Fed has raised rates, particularly the housing sector. Sales of previously occupied US homes slowed in June for the fifth straight month as mortgage rates have risen sharply this year. Expectations of higher rates have generally pushed up the 10-year Treasury yield, which influences mortgage loan rates.
Investors kept an eye on the latest batch of corporate earnings reports on Wednesday, including strong earnings from Google’s owner, Alphabetand of microsoft. Investors will know the quarterly results of Ford Motor Co. and the parent company of Facebook, Meta Platformsafter closing.
(With information from AP)
The Fed announced a new interest rate hike to contain inflation in the US