Stocks roar after Fed shies away from 75 basis point hike

U.S. stocks had their best day since May 2020 after Federal Reserve Chair Jerome Powell reassured investors that nothing larger than a 50 basis point rate hike was being considered to rein in inflation.

The Dow Jones Industrial Average of major U.S. stocks rose 938 points to top 34,000, a gain of more than 2.8 percent.

The S&P 500 index jumped nearly 3 percent to top 4,300 points after a previous close of 4,175. The technology-heavy Nasdaq rose more than 400 points for a gain of nearly 3.2 percent.

The surge in equity values comes as investors were bracing for the latest numbers on interest rate hikes from the Federal Reserve amid 40-year high inflation.

The policy-setting Federal Open Markets Committee voted unanimously to raise its benchmark rate by half a percentage point, or 50 basis points, the largest rate increase in more than 20 years.

“There is a broad sense on the committee that additional 50 basis point increases should be on the table at the next couple of meetings,” Powell said.

While the rate hike is the highest since 2000, investors seemed satisfied that it wasn’t any higher and that record inflation wasn’t spurring even more drastic action from the Fed.

“A 75 basis point increase is not something that the committee is actively considering,” Powell said.

The Fed is performing delicate maneuvers now as it seeks to cool off an overheated economy without driving it into a recession.

While the Fed is ostensibly an apolitical organization in charge of monetary policy, its decisions have major consequences for both the legislature and the Biden administration, whose approval rating has dipped as prices for everyday goods and services have skyrocketed.

The annual consumer price index was up 8.5 percent last month. The energy index rose 32 percent over the last year, and the food index increased 8.8 percent, which was the largest 12-month increase since May 1981, according to the Department of Labor.

Economists agree that supply chain disruptions and high demand from the pandemic are the reasons for inflation and that there is little in the way of fiscal policy that governments can enact to bring it down.

Whether the Fed’s rate increases are steep enough to quell inflation remains to be seen.

The biggest stock winners today, according to tallies by Yahoo Finance, included IT company Super Micro Chip Inc. with a gain of 31 percent, chemical manufacturer Livent with a gain of 30 percent and speech recognition company SoundHound AI with a gain of 15 percent.