Live updates: Stocks rise after the Fed takes historic action on inflation | CNN Business (2024)

US stocks jumped on Wednesday afternoon after the Federal Reserve announced it will increase interest rates by an aggressive three-quarters of a percent.

Wednesday’s rate hike – the largest in 28 years – signaled to investors that the Fed is committed to lowering inflation rates. Fed chair Jerome Powell indicated that a similar hike could come in July if the economic data doesn’t improve.

Stocks closely tied to economic outlook such as Boeing and the financials surged on the news. Tech stocks also grew. Amazon and Tesla both gained more than 5% on Wednesday.

As stocks settle after the trading day, levels might still change slightly.

A “game-changer” CPI report and the subsequent move by the Fed to turn increasingly hawkish have Wells Fargo economists changing their tune for 2023: Instead of a soft landing, expect a mild recession in the middle of the year.

The mild recession, which is anticipated but not assured, would likely resemble what the US economy saw in 1990 to 1991, economist Jay Bryson wrote in a note. That contraction lasted two quarters and saw a peak-to-trough decline in real GDP of 1.4%, Bryson wrote.

“There have been 12 US recessions since the end of the Second World War,” he wrote. “On average, these downturns have lasted four quarters with a peak-to-trough contraction in real GDP of 2.7%. So, our forecasted recession would be one of the milder downturns in the post-WWII era.”

And far less severe than the two most recent recessions (2007-2009 and 2020), which were “bruising affairs,” he noted.

“Because many of the underlying fundamentals of the economy are generally sound at present (i.e. household and business balance sheets are generally in good shape and the banking system is well capitalized), we think a mild and relatively short downturn is more likely than a deep and protracted one,” he wrote.

This time around, because the downturn would likely not be deep, the labor market shouldn’t fall apart; employers would be cautious about making massive cutbacks; and income shouldn’t decline significantly, he wrote, adding that receding inflation would likely spur the Fed to start cutting rates at the end of 2023.

One of the most shocking developments (at least to markets reporters/econo-nerds) from the Fed’s rate hike announcement was the fact that Kansas City Fed president Esther George was the lone dissenter…and it’s not because she wanted an even bigger rate hike.

George routinely has found herself named as one of the more hawkish members of the Fed, given that she typically is more worried about inflation than the Fed’s so-called doves, who tend to prefer lower interest rates to keep the job market healthy.

But according to Wednesday’s statement, George apparently preferred to raise rates by only a half of a percentage point, or 50 basis points.

The move is a bit of a surprise. But George has recently hinted that she might be amenable to slower rate hikes.

In a speech in May, she noted that the Fed is preparing to unwind its massive balance sheet, a move known as quantitative tightening that will be happening “with financial markets far more unsettled currently than in 2017,” the last time the Fed wound down its balance sheet this dramatically.

George, who was appointed president of the Kansas Fed in 2011, last month said she plans toretire from the job in January 2023.

The big doubt economists have about the Fed’s aggressive action on inflation: the central bank’s ability to raise rates without crashing the US economy into a recession.

Federal Reserve Chairman Jerome Powell had been bullish on his chances to navigate toward that so-called soft landing. Now, he’s not so sure.

“I don’t want to be the handicapper here,” Powell said. “This is our objective and I do think it’s possible. Like I said, though, I think that events of the last few months have raised the degree of difficulty and created great challenges.”

Powell said the chances of a soft landing are eroding because of factors outside of his control, including Russia’s invasion of Ukraine, Covid and the supply chain crunch.

“Can we still do it? There’s a much bigger chance now that it’ll depend on factors that we don’t control, which is, you know, fluctuations and spikes and commodity prices could wind up taking that option out of our hands,” Powell said. “So we just don’t know.”

Federal Reserve Chairman Jerome Powell said the central bank is mindful of the dangers of raising rates too high, too quickly – an action that some economists said could crash the US economy into a recession.

But Powell said he has a more pressing concern: losing control of prices.

“The worst mistake we could make would be to fail, which is not an option,” Powell said. “We have to restore price stability. We really do, because it’s the bedrock of the economy.”

Without price stability, Powell said, the economy won’t function properly.

“It won’t work for people,” he said. “Their wages will be eaten up, so we want to get the job done.”

The Fed’s policy statements included a key line in past months that the central bankers removed this month: “We believe that appropriate monetary policy effectively, alone, can bring about the result of 2% inflation with a strong labor market.”

By taking that sentence out, the Fed is making a significant but accurate admission: Inflation isn’t completely within its control.

“So much of it is really not down to monetary policy,” Federal Reserve Chair Jerome Powell said at his press conference Wednesday. “That just didn’t seem appropriate, so we took the sentence out.”

Powell noted that the consequence of Russia’s invasion of Ukraine, for example, is raising fuel and commodities prices to new records – something the Fed cannot change.

“That’s not something we can do something about,” Powell said. “Appropriate monetary policy alone cannot reduce inflation, so much of it is not about monetary policy.”

Like most observers, the Fed had expected that its half-point rate hike last month would help bring inflation down somewhat. Instead, the Consumer Price Index in May showed inflation rose at a 40-year high. And consumer sentiment fell to an all-time low.

“It was quite eye-catching and and we noticed that,” Powell said, noting that it changed the Fed’s plan to again raise rates by a half-point this month.

Still, Powell noted that many inflationary pressures remain outside the Fed’s control, including high oil prices, supply chain constraints and Covid.

“What’s becoming more clear is that many factors that we don’t control are going to play a significant role in whether it’s possible to bring inflation down or not,” Powell said. “But having said that, there is a path for us to get there, it’s not getting easier, it’s getting more challenging because of these external forces.”

Yet he said he’s hopeful the Fed can raise rates without sinking the economy into a recession.

“We don’t seek to put people out of work, of course,” Powell said. “We don’t think too many people are working. But we also think that you really cannot have the kind of labor market we want without price stability.”

So much for selling on the Fed’s rate hike news.

Stocks surged to their highest levels of the day after Jerome Powell suggested that people should not expect that many more rate hikes as large as the one just announced.

The Dow was up nearly 300 points, or about 1%. The blue chips had surged as much as 400 points at the beginning of his press conference. The S&P 500 and Nasdaq also added to their gains, rising 1.3% and 2.3% respectively.

Powell did not rule out the possibility of another 75 basis point hike in July. But he added that moves of this size would not be “common.”

Federal Reserve Chair Jerome Powell sought to reassure investors and all Americans that the central bank understand its awesome responsibility to get prices under control.

The Fed “has the tools we need and the resolve it will take” to bring sky-high inflation back to normal, Powell said at the beginning of his remarks Wednesday.

“In the current highly unusual circ*mstances with inflation, well above our goal, we think it’s helpful to provide even more clarity than usual,” Powell said.

Powell noted that after the Consumer Price Index showed inflation returning to a 40-year high in May, the Fed was poised to act fast.

“The question is, ‘what do you do? And do you wait six weeks to do it at the next meeting?” Powell said. “And I think the answer is that is not where we are with this. So we decided we needed to go ahead.”

Fed chair Jerome Powell acknowledged that the decision to raise interest rates by three-quarters of a percentage point was much bigger than usual Fed hikes. He suggested that the Fed wouldn’t make a habit of being this aggressive…but he didn’t rule out another increase of this magnitude at its next meeting in July.

“Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common,” Powell said.

However, he added that the Fed would likely be debating whether to raise rates by 75 basis points or just 50 basis points when it meets at the end of next month.

“We will make our decisions meeting by meeting,” Powell said, once again stressing that the Fed will remain “data dependent.”

The Fed is getting seriously tough on inflation. That could hurt the job market.

Although the Fed is hardly predicting a recession (as many other economists are anticipating), the central bank predicted that unemployment would rise for the next two years as it tries to slow the economy just enough to get prices under control.

The Fed now expects America’s unemployment rate to rise modestly to 3.7% this year (it’s 3.6% now). Next year, unemployment will rise to 3.9% and will reach 4.1% in 2024, the Fed predicted.

All of those expectations are higher than what the Fed foresaw in March. Earlier this spring, the Fed expected unemployment to stay at 3.5% this year and next, rising to 3.6% in 2024. The Fed did not anticipate that it would have to raise its target interest rate by a one and a quarter points since then.

An odd quirk of the Fed’s mission to balance high employment with low prices is that the central bank sometimes needs to slow down the US economy — on purpose — to achieve its aims.

That’s exactly what the Fed is doing now. With today’s historic rate hike, the Fed hopes to make borrowing more expensive. That should decrease economic activity, make businesses rethink spending money and make consumer loans more expensive. But that should also help keep surging prices in check.

In effect, America’s gross domestic product should grow more tepidly as rates rise. And that’s exactly what the Fed expects will happen.

The Fed now predicts US GDP will grow by just 1.7% this year and in 2023. In 2024, the central bank thinks the economy will grow 1.9%. That ain’t robust. And it’s much less than the 2.8% growth the Fed had expected for this year as recently as March.

The Fed released its economic projections for the next few years Wednesday, and the central bank is convinced it can regain control of surging prices.

But not in 2022.

The Fed predicted that inflation would surge 5.2% this year over last year. Although that’s lower than the 6.3% annual growth in April’s Personal Consumption Expenditures Price Index, it’s substantially higher than the 4.3% jump in 2022 prices that the Fed was expecting in March.

The good news is that the Fed is confident its historic rate increases will return inflation back to normal as early as next year. It now expects 2023’s PCE inflation rate to come in at 2.6% above this year’s prices, down slightly from the 2.7% it anticipated in March. And in 2024, the Fed now believes inflation will return to 2.2%, down from the 2.3% it predicted in March.

The Federal Reserve didn’t surprise anyone Wednesday, hiking interest rates by 75 basis points to try and quell inflation. But Wall Street wasn’t overly impressed.

Stocks gave up a chunk of their gains following the announcement. The Dow slipped briefly into negative territory before bouncing back. The S&P 500 was still up about 0.5% and the tech-heavy Nasdaq continued to outperform, gaining 1.1%.

The Fed’s policy statement was a mixed bag: The economy remains hot, with job growth continuing to soar. That’s the good news. The bad news: The economy may be too hot, as inflation refuses to slow down.

Good news:

Overall economic activity appears to have picked up after edging down in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low.

Bad news:

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 is causing tremendous human and economic hardship. The invasion and related events are creating additional upward pressure on inflation and are weighing on global economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks.

The Federal Reserve raised interest rates by three-quarters of a percentage pointon Wednesday in an aggressive move to tacklewhite-hot inflation that is plaguing the economy,frustrating consumers and stifling the Biden administration.

It’s the largest rate hike since 1994, and will affect millions of American businesses and households, pushing up the cost of borrowing for homes, cars and other loans in order to force a slowdown in the economy.

Until this week, economists and investors had expected the Fed to raise its benchmark interest rate by half a point, the second such move in the last 22 years. However, after a disastrous inflation report on Friday revealed that price hikes are broadening across the entire economy, expectations rose for a more dramatic rate hike.

Remember when Wall Street thought that Fed chair Jerome Powell was an inflation dove? And that he would prefer to keep interest rates lower for a longer time to boost the economy? Now the market is of the mindset that Powell will be very hawkish about inflation during Wednesday’s press conference.

“The Fed needs to show that higher inflation is unacceptable and that they are going to stamp their feet and not put up with it,” said Bill English, a professor of finance at the Yale School of Management. “The Fed is not going to allow inflation to rise and remain high for a long time. Powell will suggest more significant rate hikes are coming.”

The Fed officially has two mandates: maintaining maximum employment and price stability. Businesses are still hiring and the unemployment rate remains near historic lows. That’s led to sizable wage gains for workers.

Multiple factors are contributing to surging inflation pressures: Bigger paychecks, coupled with higher prices for oil due to Russia’s invasion of Ukraine, and global supply chain disruptions that are pushing up the costs for other goods.

As a result, some argue the Fed really has only one mandate right now: getting inflation under control…no matter what it does to stocks.

“As long as the employment picture remains strong, Powell will not care about the stock market,” said Michael Vogelzang, managing director and chief investment officer with CAPTRUST, a retirement plan advisory firm.

Vogelzang said that the market is playing a game of chicken right now, betting that earnings estimates for major companies will eventually have to come down as the Fed continues to raise rates.

Jerome Powell is putting on his rate-hiking boots. That’s why some experts think investors need to look for pockets of the market that should hold up well even if the Fed steps up the size and speed of rate increases.

Big Tech companies, in particular, have been hit hard along with the broader market. But there are parts of the tech sector that may have been unfairly punished.

“Tech companies selling to business are much more stable than those selling to consumers,” said Robert Stimpson, chief investment officer and portfolio manager for Oak Associates Funds. “Consumer tech is problematic. Inflation is a big issue.”

Stimpson said tech giants that his funds own, such as networking equipment leader Cisco (CSCO), Google owner Alphabet (GOOGL) and chip companies Broadcom (AVGO) and Qualcomm (QCOM), have more exposure to business spending.

He added that these are all well capitalized companies, with strong cash levels and low amounts of debt. This means that higher interest rates shouldn’t hurt them as much as companies with weaker balance sheets.

Investors waiting for the Federal Reserve to make a bold move on interest rates won’t have to wait much longer. And they’re apparently relieved that their expectations of a big rate hike are about to become reality.

Stocks were up modestly in midday trading Wednesday, a few hours before the Fed is widely expected to jack up rates by three-quarters of a percentage point, or 75 basis points. The move is the Fed’s response to runaway inflation that is starting to hurt consumer demand and retail sales.

The Dow was up more than 190 points, a gain of about 0.6%. The S&P 500 and Nasdaq rose 1.1% and 1.8% respectively.

Stocks have stabilized in the past two days following massive plunges on Friday and again on Monday as investors digested the likelihood of larger than expected increases in consumer prices and the resulting change in forecasts for bigger Fed rate hikes. Monday’s slide pushed the S&P 500 into a bear market, a 20% drop from its most recent highs.

The Fed’s announcement will come at 2pm EST, when it also will release its latest economic projections showing where central banks expect inflation, the unemployment rate and interest rates to head next. Fed chair Jerome Powell should provide even more clarity when he speaks to reporters at 2:30 ET.

For the first time in nearly three weeks, AAA’s reading of the average price of a gallon of regular gas is less than it was the day before. The national average Wednesday stood at $5.01 a gallon — or $5.014 to be precise. Tuesday it stood at $5.016, which rounded up to $5.02 a gallon.

Wednesday’s decline would be enough to save drivers a whopping 4 cents after spending more than $100 to fill a 20 gallon tank. But it is the first time since May 27, the Friday before Memorial Day, that there has been even a modest decline in gas prices. Tuesday had marked the 18th straight day of AAA’s reading hitting a new record high, and the 35th time in 36 days.

But this ever so modest pause in rising gas prices isn’t expected to last, even though the increases have essentially stalled since crossing the $5 mark for the first time on Saturday. Tom Kloza, global head of energy analysis for the OPIS, which tracks prices at 130,000 stations nationwide for AAA, predicts the national average price could approach $6 a gallon later this summer.

The Federal Reserve is going to deluge the market today with data and commentary. The rate hike announcement — there is literally zero chance the Fed will hold rates steady — comes at 2 pm ET, and Fed chair Jerome Powell talks to reporters at 2:30.

But the most important bit of information from the central bank may come in its updated economic projections, which will be released at the same time as the policy statement. Investors will get to see the Fed’s latest forecasts for the unemployment rate, inflation and gross domestic product (GDP) growth.

There will also be another important insight called the dot plot, which gives a look at how high the Fed thinks rates will eventually go. The series of dots represents where each member of the Fed —including those who don’t have a say in Wednesday’s decision — thinks rates will be by the end of this year, 2023, 2024 and the so-called “longer run.”

When the Fed last published its dot plot in March, the median forecast was for rates to end 2022 at about 1.9%. These dots will certainly move higher after today’s rate hike. Investors are expecting that the Fed will raise rates to a range of 1.75% to 2% later this afternoon.

The question is how big of a jump will there be in the dots. Back in December 2021, the Fed was only expecting rates to finish this year at about 0.9%. Clearly, the central bank has been caught off guard by inflation and is now rushing to jack up rates to choke off pricing pressures before they get even worse.

So don’t be surprised to see the dots show a median forecast for rates somewhere in the 3.5% to 4% range. After all, the Fed is now expected to embark on a series of much larger than usual rate hikes.

US stocks were higher Wednesday morning as investors appeared optimistic about the Federal Reserve announcement this afternoon.

The central bank was widely expected to hike interest rates by half a percent, but now markets are betting on a 95% chance that the Fed institutes a 75-basis-point rate hike, according to CME FedWatch. That would be the largest hike since 1994.

Fed Chair Jerome Powell will hold a press conference after the announcement where he will explain the central bank’s thinking and signal plans for interest rates in the future.

Stocks rose even more as the morning wore on.

Just a week ago, investors thought it was a slam dunk that the Fed would raise rates by a half of a percentage point. But that was before Friday’s consumer price index report showed that inflation pressures actually got worse last month.

Now, traders are pricing in a 97.9% likelihood of a 75 basis point hike, or three-quarters of a percentage point.

What about that remaining 2.1%? As of early morning Wednesday, fed funds futures on the CME were indicating that the market expected “just” a 50 basis point hike. But those futures were all over the place. Earlier Wednesday, the CME was showing a 2% probability that the Fed would raise rates by 100 basis points, aka a full percentage point.

In other words, some investors still think the Fed might show some restraint while others think Fed chair Jerome Powell will conjure the ghost of Paul Volcker and turn into a super hawk.

The smart money is still on a three-quarters of a percentage point hike. But there does seem to be a minute probability that Powell will surprise the market. Or to quote Lloyd Christmas in “Dumb and Dumber” about the slim odds the Fed won’t raise by 75 basis points: “So you’re telling me there’s a chance!”

The European Central Bank is holding an unscheduled meeting Wednesday to discuss asharp bond market sell-offthat has revived memories of the region’s debt crisis more than a decade ago.

The bank would hold the “ad-hoc” meeting to discuss “current market conditions,” according to a spokesperson for the central bank. The meeting was reportedly due to begin at 5 a.m. ET.

The ECB left interest rates unchanged at its regular meeting last week butconfirmed plansto raise the cost of borrowing by 25 basis points next month — its first rate hike in 11 years — and said a bigger hike could follow in September “if the medium-term inflation outlook persists or deteriorates.” It also said it would stop buying European government bonds.

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Borrowing costs are going up

Every time the Fed raises rates, it becomes more expensive to borrow. That means higher interest costs for mortgages, home equity lines of credit, credit cards, student debt and car loans. Business loans will also get pricier, for businesses large and small.

Good news for savers

Rock-bottom rates have penalized savers. Money stashed in savings, certificates of deposit (CD) and money market accounts earned almost nothing during Covid (and for much of the past 14 years, for that matter). Measured against inflation, savers have lost money.

The good news, however, is that these savings rates will rise as the Fed moves interest rates higher. Savers will start to earn interest again.

Market mayhem

Free money from the Fed was amazing for the stock market.

Higher rateshave been a major challenge for the stock market, which hadbecome accustomed to – if not addicted to – easy money.US stocks plunged into a bear market on Monday amid fears that the Fed’s aggressive rate hikes will crash the economy into a recession.

At a minimum, rate hikes mean the stock market will face more competition going forward from boring government bonds.

Cooler inflation?

The goal of the Fed’s interest rate hikes is to get inflation under control, while keeping the jobs market recovery intact.

Yet it will take time for the Fed’s interest rate hikes to start chipping away at inflation. And even then, inflation will still be subject to developments in the war in Ukraine, the supply chain mess and, of course, Covid.

U.S. stock futures rebounded slightly ahead of a consequential Fed decision in which the central bank is widely expected to issue a historic rate hike to gain control of inflation.

Dow futures were up 130 points or 0.4%.

S&P 500 futures rose 0.5%.

Nasdaq futures were 0.6% higher.

US oil fell 1.2% to $117 a barrel. US gas prices held steady at a record $5.01 a gallon.

Thestock marketwon’t be satisfied unless the Federal Reserve takes drastic action on inflation.

Investors now overwhelmingly predict the Fed will raise rates by aremarkable three-quarters of a percentage pointat the conclusion of its policy meeting Wednesday. Thathasn’t happened since 1994, when Alan Greenspan ran the Fed.

After raising rates by a half point in May — an action the Fed hadn’t taken since 2000 — Chair Jerome Powell pledged more of the same until the central bank was satisfied that inflation was under control. At that point, the Fed would resume standard quarter-point hikes, he said.

But after May’s hotter-than-expected inflation report, Wall Street is increasingly calling for tougher action from the Fed to keep prices under control. Goldman Sachs on Tuesday joined Jefferies and Barclays in predicting that the Fed would hike rates by three quarters of a point, also referred to as 75 basis points, this week.

Traders have gotten the message: The stock market has priced in a 91% chance that the central bank will raise rates by three quarters of a point, and nearly a 9% chance it raises rates by a percentage point, according to Fed funds futureslisted on the CME. That marks a stunning change in sentiment from Monday, when 60% of investors believed the Fed would raise rates by just a half point. A week ago, expectations for a three-quarter-point increase were just 3%.