Stocks on Wall Street closed broadly higher Wednesday after the Federal Reserve signaled it may begin easing its extraordinary support measures for the economy later this year.
The central bank said it may start raising its benchmark interest rate sometime next year, earlier than it envisioned three months ago. It also said it will likely begin slowing the pace of its monthly bond purchases “soon” if the economy keeps improving. The Fed’s been buying the bonds throughout the pandemic to help keep long-term interest rates low.
The S&P 500 rose 1%, breaking a four-day losing streak. The benchmark index initially climbed 1.4% after the Fed issued its statement at 2 p.m. ET.
The other major indexes also received a bump but shed some of their gains by late afternoon. The Dow Jones Industrial Average rose 338.48 points, or 1%, to 34,258.32. The blue-chip index briefly surged 520 points higher. The Nasdaq composite gained 150.45 points, or 1%, to 14,896.85.
Bond yields mostly rose. The yield on the 10-year Treasury note wobbled up and down after the Fed’s announcement, but it wound up little changed at 1.31% from 1.32% late Tuesday. The yield influences interest rates on mortgages and other consumer loans.
Wall Street analysts said the Fed’s policy update was in line with what the market was expecting. The VIX, which measures how much volatility investors expect for the S&P 500, sank about 14% after the Fed statement.
“This was so well telegraphed that it didn’t take anybody by surprise,” said Brian Jacobsen, senior investment strategist at Wells Fargo Asset Management.
At a news conference, Federal Reserve Chair Jerome Powell said the Fed plans to announce as early as November that it will start to taper its monthly bond purchases, should the job market maintain its steady improvement.
The Fed’s shift revealed that inflation is starting to be a concern, said Gene Goldman, chief investment officer at Cetera Financial Group.
“Our concern is that the Fed keeps sticking to its view that this is a transitory phase, but we aren’t seeing evidence that this is transitory,” he said.
Goldman added that the broader market could be in for a correction as economic growth slows and rising inflation persists. “Our concerns about the overall economy and market is that number one, we’re at peak everything,” he said.
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