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Dow jumps 300 points after Powell says Fed could raise rates another 75 basis points in July

Topline

The stock market rose on Wednesday after the Federal Reserve raised interest rates by 75 basis points – the biggest increase in 28 years, while Fed Chairman Jerome Powell also signaled that the central bank could raise rates again by the same magnitude at a future meeting. month.

Highlights

Stocks rebounded on Wednesday after five straight losing sessions: the Dow Jones Industrial Average rose 1%, more than 300 points, while the S&P 500 gained 1.5% and the tech-heavy Nasdaq Composite 2.5 %.

The market rallied after the Federal Reserve announced it would raise interest rates by 75 basis points, the biggest increase since 1994, as it seeks to tackle runaway inflation.

Investors had bet on a 75 basis point increase, rather than the 50 basis point rise previously expected, after a much hotter than expected inflation report last week showed that prices at the consumption jumped 8.6% in May compared to a year ago. from.

Stocks particularly rose after Fed Chairman Jerome Powell said the central bank would continue to raise rates aggressively, with a similar 75 basis point increase under consideration for the next meeting in July. .

The last time the Federal Reserve raised interest rates by 75 basis points was under Alan Greenspan in November 1994, when the central bank orchestrated a soft landing and avoided a recession despite a rate hike seven times in 13 months.

Government bond yields moderated somewhat on Wednesday after rising earlier in the week, with 2-year and 10-year Treasury yields recently hitting their highest levels since 2007 and 2011, respectively.

Crucial quote:

“Today’s announcement confirms the Fed’s commitment to fight inflation more aggressively despite the potential consequences of raising rates at such a rapid pace,” said Charlie Ripley, Senior Investment Strategist for Allianz Investment Management. “Overall, the Fed’s key rates have been out of sync with the inflation story for some time and the Fed’s aggressive hikes should calm markets for now.”

Contra:

‘Don’t be fooled’ by Wednesday’s rally – the general attitude is ‘still very grim, and most people see a recession and further decline in stocks as inevitable’, said the Vital Knowledge founder, Adam Crisafulli. “The only area of ​​anxiety is about bear market rallies and there is concern that such a rally will occur at some point this week around the Fed (most people think such a rally will be fleeting but violent) .”

Tangent:

The price of Bitcoin, meanwhile, fell to around $21,000 as the cryptocurrency market continues to be hit hard by a sell-off this week as several companies halted trading or announced layoffs in what experts call a “crypto winter”.

Key context:

The benchmark S&P 500 fell deeper into bear market territory on Tuesday, now sitting about 22% below its record highs in January. All three major averages are coming off their worst week of declines since January, falling about 5% or more after last week’s scorching inflation report caused recession fears to flare.

Further reading:

The Fed allows the biggest interest rate hike in 28 years as experts fear its fight against inflation could trigger a recession (Forbes)

Here’s how markets reacted the last time the Fed raised rates by 75 basis points (Forbes)

The stock market “carnage” is set to worsen as the Fed’s rate decision looms – here’s how bad it could get (Forbes)

Here’s What The Crypto “Bloodbath” Means For The Stock Market (It’s Not Good) (Forbes)

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Post expires at 8:42pm on Saturday June 25th, 2022