The New York Stock Exchange welcomed with relief the determination of the US Federal Reserve (Fed) to curb inflation with a significant increase in key interest rates on Wednesday.
• Also read: With inflation galloping in the United States, the Fed is making the biggest rate hike since 1994
According to the final results, the Dow Jones index rose 1.00% to 30,668.53 points, the S&P 500 rose 1.46% to 3,789.99 points and the tech-heavy Nasdaq rose 2.50% to 11,099. 15 points.
At the end of the Monetary Committee meeting, the US Federal Reserve increased interest rates by 0.75 percentage points to a range between 1.50% and 1.75%. This is the sharpest monetary tightening since 1994.
“The Fed has underscored the seriousness of its mission by raising interest rates by 75 basis points (0.75 percentage point), for the first time since 1994, and acted swiftly in anticipation of an acceleration in inflation,” commented Chris Low, chief economist at FHN Financial.
“For the first time in years, the Fed is attempting to reverse inflation, which is already well above its target,” the analyst added.
For Spartan Capital’s Peter Cardillo, “the Fed spoke strongly and the market liked that.” “Although the bear market will last for a while, it has reacted positively and bond yields have fallen after the sharp rise earlier in the week,” the analyst pointed out.
Hard or soft landing?
Fed Chairman Jerome Powell stressed in his press conference that “the economy is still strong and that he thinks he can achieve a soft landing by trimming the Fed’s balance sheet and raising interest rates,” Cardillo added .
“Personally I doubt it, I think we’re headed for a moderately hard landing,” the analyst said, citing the slowdown in the economy that policymakers were targeting to calm the rise in prices.
Inflation in the United States peaked at 8.6% over a year, and Jerome Powell asserted that the central bank was “determined to bring inflation back to around 2%”.
Ventura Wealth Management’s Tom Cahill also believes that orchestrating a soft landing, ie avoiding a recession or rising unemployment, will be difficult.
But the market appreciates, he said, the fact that the Fed “remains open to raising rates by 50 basis points, or 75 points, at the next meeting in July.” “This option is welcome because the market fears the Fed is doing too much.”
Ten-year US Treasury yields, which move inversely to their price, reacted positively, falling to 3.29% from 3.47% the day before, a high since 2011.
The dollar weakened somewhat after rising to a 20-year high on Tuesday. The dollar index, which compares the greenback to a basket of other currencies, fell 0.77% to 104.70 points. Against the euro, it was worth $1.0453 per euro (-0.34%).
For its part, the European Central Bank (ECB) had earlier held an emergency meeting, extremely rare, to calm tensions over differences in lending rates between euro-zone countries.
Daily indicators continued to reflect a US economy shocked by rising prices and paralyzed by supply chain shortages.
Contrary to analysts’ expectations, retail sales in the United States fell 0.3% in May, while consumer purchasing power fell sharply.
Manufacturing activity in the New York area, as measured by the Fed’s Empire State Index, continued to decline in June.
Investors fled cryptocurrencies and risky asset Bitcoin, which slipped to $21,566 (-1.82%).
All sectors of the S&P 500 except energy rallied, with consumer discretionary leading the way (+3.02%), followed by communications (+2.36%) and real estate (+2.33%).
A number of titles, especially in sales, which had fallen sharply at the beginning of the week, recovered strongly, such as the online car dealer Carvana (+ 16.78%) or that of animal feed Chewy (+ 8.10%). Car rental company Hertz, which announced a $2 billion buyback of its own shares, rose 5.05%, while Avis rose 7.94% on the eve of leaving vacation.
Vaccine maker Moderna was hailed (+5.73% to $128.53) after taking a crucial step in vaccinating infants and young children against Covid-19, with positive expert advice for the approval of its serum as well as that of Pfizer (+1.23% to $48.51).