United States markets on Wednesday reacted positively to the Federal Reserve's 50 points basis rate increase, the first of such magnitude since 2000, to try and control inflation. Likewise stocks rallied on Fed chair Jerome Powell's announcement ruling out larger rate hikes and underscoring the possibility of a soft landing, avoiding a recession.
Energy was the top-performing sector, next to financial names, while technology stocks also climbed. Communication services and information tech were among the top S&P 500 sectors.
“The market is applauding Chairman Powell’s comments that the economy remains strong thanks to solid corporate balance sheets and still cash-rich consumers, said Quincy Krosby, chief equity strategist at LPL Financial. “Moreover, he suggested that perhaps the worst of the sharp move in inflationary pressures may be poised to ease.”
Although overall economic activity edged down in the first quarter, household spending and business fixed investment remained strong. Job gains have been robust in recent months, and the unemployment rate has declined substantially,” pointed out the Federal Open Market Committee.
However inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures. The invasion of Ukraine by Russia and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks.
FOMC expects inflation to return to its 2% objective and the labor market to remain strong. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent and anticipates that ongoing increases in the target range will be appropriate.
In addition, the Committee decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet
Finally FOMC would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Esther L. George; Patrick Harker; Loretta J. Mester; and Christopher J. Waller. Patrick Harker voted as an alternate member at this meeting.