Wednesday, May 4, 2022

Market update: Federal Reserve hikes short-term rates by 0.50% (4 May 2022)

The Federal Reserve increased short-term interest rates on Wednesday, as expected, raising the fed funds target range by 50 basis points to 0.75-1.00%the biggest increase in 22 years.  The stock market surged and Treasury yields fell as Fed chief Jerome Powell signaled supersize rate hikes are off the table in June and July.

Fed chief Powell says it's crucial that inflation is brought down quickly. But Powell said he sees rate hikes of "50 basis points" on the table for the next couple of Fed meetings. He added that policymakers aren't actively considering 75 basis points. Markets had priced in a good chance of three-quarters of a point hikes at the June and July Fed meetings.

Fed chief Powell's less-hawkish-than-feared rate-hike forecast sent stocks sharply higher and Treasury yields lower.

Dow Jones Industrial Average -6.3% YTD
S&P 500 -9.8% YTD
Russell 2000 -13.2% YTD
Nasdaq Composite -17.1% YTD

 All 11 S&P 500 sectors closed higher with gains ranging from 1.1% (real estate) to 4.1% (energy). Ten sectors advanced more than 2.0%.
 ** The following day **

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