NEW YORK (Reuters) – The New York Stock Exchange ended higher on Wednesday after an expected Federal Reserve rate hike and signs of progress in talks between Moscow and Kyiv on the 21st day of Russia’s invasion of Ukraine.
The US Federal Reserve (Fed) announced a quarter-point hike in its main policy rate and said it plans to raise it to between 1.75% and 2% by the end of the year, adopting a deliberate tone offensive against inflation.
New Fed forecasts suggest it could raise rates again at each of six scheduled meetings by the end of December and that the fed funds rate could reach 2.8% by the end of 2023, a level higher than that of 2.4% from which the central bank estimates that it would slow down growth.
In its statement, the Federal Open Market Committee (FOMC), its monetary policy committee, underlines the great uncertainties to which the conflict in Ukraine and the health crisis expose the economy but adds that further rate hikes will be “appropriate” in the coming months.
The Dow Jones index gained 1.55%, or 518.76 points, to 34,063.1 points.
The broader S&P-500 gained 95.41 points, or 2.24%, to 4357.86 points.
The Nasdaq Composite advanced for its part by 487.93 points (3.77%) to 13,436.55 points.
The three major indices, which had previously benefited from the evolution of the talks between Moscow and Kyiv, despite the continuation of the war in Ukraine, briefly tipped into the red on the announcement of the rate hike two hours before the close, before recover and finish in positive territory.
Some analysts reacted cautiously to the decisions of the US central bank.
“It looks like the Fed intends to cause a recession in order to get rid of the inflation problem. It’s as short-sighted as when it declared a year ago that inflation was transitory,” said Scott Ladner , of Horizon Investments Charlotte, North Carolina.
“I wish Jay Powell (the Fed Chairman, editor’s note) and company good luck because they’re not going to get anywhere near the goal they set for themselves, unless they push a lot of people into unemployment. is it going to happen, because we are going to have a recession”, added Joseph LaVorgna, chief economist Natixis New York.
Jim Paulsen, Leuthold Group Minneapolis strategist, however, said many investors might just be relieved to see the Fed take action.
“To finally hear the Fed ‘talk and act’ to fight inflation is soothing for the investment community and for the real economy facing rising prices,” he said.
Economic data suggests that tighter monetary policy is often accompanied by strong stock price growth. The S&P 500 averaged a 7.7% rise in the first year of the Fed’s rate hike, according to a Deutsche Bank study of 13 hike cycles since 1955.
(Reporting by Sinad Carew, Lewis Krauskopf, Herb Lash and Stephen Culp New York, Devik Jain and Bansari Mayur Kamdar Bangalore; written by Jean-Stphane Brosse)