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Stocks hold onto gains after Fed hikes rates to fight inflation

NEW YORK — Stocks are still higher on Wall Street on Wednesday, but are swinging higher and lower after the Federal Reserve’s biggest interest rate hike since 1994 in its quest to bring down inflation. Them&P 500 briefly fell after the announcement, then quickly rebounded near where it was, up 0.7%. Treasury yields have held near their highest levels in more than a decade. The three-quarters of a percentage point increase was three times larger than the central bank usually does. The Fed has signaled that more hikes are on the way as it tries to tackle the worst inflation in four decades.

THIS IS A BREAKING NEWS UPDATE. AP’s previous story follows below.

NEW YORK (AP) — U.S. stocks rise Wednesday, on track for their first gain in six days, but more turbulence could ensue as the Federal Reserve prepares to announce how much it is raising interest rates. interest.

Them&P 500 was 1% higher as investors braced for the Fed’s rate hike, which is expected to be triple the usual amount and the biggest since 1994. The Dow Jones Industrial Average rose 176 points, or 0.6%, at 30,541, as of 1:35 p.m. EST, and the Nasdaq composite was 1.8% higher.

Perhaps even more important than the amount of the Fed’s rate hike this afternoon, which would be the third rate hike of the year, is what Chairman Jerome Powell says about future increases.

Investments around the world, from bonds to bitcoin, have tumbled this year as high inflation forces the Federal Reserve and other central banks to quickly remove support buoyed under markets at the start of the pandemic. The fear is that too aggressive interest rate hikes will push the economy into a recession.

Even if central banks pull off the tricky trick of slowing the economy just enough to stamp out inflation, without a recession, higher interest rates drive investment prices down regardless. The hardest hit investments were the investments that rose the most in the era of easy money with ultra-low interest rates, including high-growth tech stocks and cryptocurrencies.

Treasury yields hit their highest levels in more than a decade on expectations of a more aggressive Fed, although they eased on Wednesday. A disappointing report showing U.S. retailer sales unexpectedly fell in May compared to April helped. So did a weaker-than-expected manufacturing report in New York State.

The economy is still largely resilient in a booming job market, but it has recently shown signs of distress. A preliminary reading on consumer sentiment last week, for example, fell to its lowest level on record, largely due to high gasoline prices.

The 10-year Treasury yield fell to 3.41% from 3.48% on Tuesday evening. The two-year Treasury note, which more closely tracks Fed action expectations, fell to 3.34% from 3.45%.

“The bond market is currently driving the broader market and it will continue” even after Fed Chairman Jerome Powell spoke this afternoon, said Jay Hatfield, CEO of Infrastructure Capital Advisors.

Cryptocurrency prices continued to fall, and bitcoin fell to $20,087.90, nearly 71% below its all-time high of $68,990.90 set late last year. It was down almost 8% at $20,653.22 in afternoon trading, according to CoinDesk.

Its fall has deepened as investors raise their expectations of the Fed’s aggressiveness on interest rates.

A week ago, hardly anyone was expecting a three-quarters percentage point hike, which is the general expectation for this afternoon. But a stunning report on Friday sent markets shivering when it showed consumer inflation unexpectedly accelerating last month.

It dashed hopes on Wall Street that inflation may have already peaked, and the data apparently prompted the Federal Reserve to become more aggressive. The Fed has been criticized for moving too slowly earlier to bring inflation under control. Other central banks around the world are also raising interest rates, adding to the pressure.

Japan’s central bank kept rates at historic lows. This sent the yen to its lowest level in two decades against the US dollar as traders moved capital in search of higher returns.

The war in Ukraine has helped push up oil prices as the region is a major energy producer. COVID infections in China, meanwhile, have shut down factories and disrupted supply chains.

Everything helped pull the S&P 500 down more than 20% from its record high set in early January, putting Wall Street in what investors are calling a bear market.

Markets were more relaxed on Wednesday, with stocks climbing across Europe and parts of Asia.

Germany’s DAX gained 1.4% and France’s CAC 40 rose 1.3% after the European Central Bank called an unscheduled meeting to address concerns that rising interest rates could cause market turbulence. continental bond market. The central bank did not give a detailed plan, but said it would act against “fragmentation” if necessary, as bond yields for some European countries are rising much more than others.

Shares in Shanghai gained 0.5% after government data showed Chinese factory activity rebounded in May as virus checks that shuttered businesses in Shanghai and other industrial hubs eased. released. Shares in Seoul and Tokyo, however, fell more than 1%.

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AP Business Writers Damian J. Troise and Joe McDonald contributed.

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Post expires at 6:51pm on Saturday June 25th, 2022