The New York Stock Exchange welcomed with satisfaction the US central bank’s determination to curb inflation by sharply raising key interest rates on Wednesday.
• Read also: In the face of hyperinflation in the US, the Fed makes the largest rate increase since 1994
According to the final results, the Dow Jones rose 1.00% to 30,668.53 points, the S&P 500 rose 1.46% to 3789.99 points, and the technology-heavy Nasdaq rose 2.50% to 11099.15 points.
At the end of its monetary committee meeting, the Federal Reserve raised its key rates by 0.75 percentage points, putting them in a range of 1.50 to 1.75%. This is the strongest monetary tightening since 1994.
“The Fed has reaffirmed its mission to raise interest rates for the first time by 75 basis points (0.75 percentage points) since 1994, and is acting 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 trying to reverse inflation that is already well above its target,” the analyst added.
For Peter Cardillo of Spartan Capital, “The Fed spoke out aggressively and the market liked that.” “Although the bear market will continue for a while, it reacted positively and bond yields fell after the sharp rise at the beginning of the week,” the analyst noted.
Hard landing or soft landing?
Jerome Powell, Chairman of the Federal Reserve, emphasized at his press conference that “the economy remains strong and that he believes it can achieve a smooth landing by cutting the Fed’s balance sheet and raising interest rates,” Mr. Cardillo said.
“Personally, I doubt it, I think we are heading for a fairly sharp downturn,” the analyst said, referring to a slowdown in the economy that monetary authorities are seeking to cool price hikes.
Inflation peaked at 8.6% within one year in the US and Jerome Powell asserted that the central bank was “determined to bring inflation back to close to the 2% target”.
Tom Cahill of Ventura Wealth Management believes that it will be difficult to orchestrate a smooth landing, that is, avoiding a recession or high unemployment.
But he said the market appreciated the fact that the Fed remains open to “a 50bp or 75bp rate hike at the next meeting in July”. “This option is welcome, because the market is afraid that the Fed will do too much.”
Yields on 10-year US government bonds, which move opposite their price, responded positively, falling to 3.29% from 3.47% the day before, the highest level since 2011.
The dollar weakened slightly after it jumped to a 20-year high on Tuesday. The dollar index, which compares the US currency to a basket of other currencies, fell 0.77% to 104.70 points. Against the euro it was equal to 1.0453 dollars per euro (-0.34%).
For its part, which is an extremely rare fact, the European Central Bank (ECB) held an emergency meeting earlier in order to calm tensions over the differentials in borrowing rates between eurozone countries.
Today’s indicators continued to reflect the US economy, which has been shocked by rising prices and crippled by supply chain bottlenecks.
Contrary to analyst expectations, US retail sales fell 0.3% in May, while consumer purchasing power fell sharply.
As for manufacturing activity in the New York area, as measured by the Federal Reserve’s Empire State Index, it remained in contraction in June.
Investors fled cryptocurrency and bitcoin for risky assets, which fell to $21,566 (-1.82%).
All S&P 500 sectors recovered, excluding energy, and consumer discretionary spending in the lead (+3.02%), followed by telecom (+2.36%) and real estate (+2.33%).
A number of titles rebounded strongly, particularly in distribution, which fell sharply at the beginning of the week, such as online car seller Carvana (+16.78%) or Chewy animal food (+8.10%). Car rental company Hertz, which announced the buyback of its shares for $ 2 billion, rose 5.05%, while Avis, on the eve of the departure, increased by 7.94%.
Vaccine maker Moderna (+5.73% to $128.53) is hailed after taking a decisive step toward vaccinating infants and young children against Covid-19, with a favorable recommendation from experts to get its serum licensed in addition to Pfizer’s serum (+1.23% to $48.51).
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