US stocks rally, dollar retreats as Fed lifts interest rates
FILE PHOTO: The Wall Street street sign is framed by the American flags flying outside the New York Stock exchange, Jan 14, 2022, in the Financial District. (AP Photo/Mary Altaffer)
NEW YORK: Wall Street stocks rallied and the dollar retreated on Wednesday (May 4) after the Federal Reserve announced a large 50 basis points interest rate increase but ruled out an even bigger hike for the foreseeable future.
The decision - which follows weeks of anticipation and speculation as Fed officials have vowed a tough response to inflation - came as European officials proposed a gradual ban on Russian crude, lifting oil prices.
With inflation at the highest rate in four decades, Federal Reserve Chair Jerome Powell sent a message directly to the American people, expressing concern for the pain caused by rising prices, and pledging to use all available tools to bring them down.
Wednesday's interest rate hike, the biggest since 2000, was coupled with a move to begin reducing the central bank's bond holdings from Jun 1, marking the Fed's most aggressive steps so far to counter inflation.
Powell said half-percentage point increases "should be on the table at the next couple of meetings," but added that a three-quarter point increase "is not something the committee is actively considering".
Stocks rallied off the remarks as Powell also expressed confidence the US central bank could engineer a "soft landing" that tames inflation without sending the economy into a recession.
Major US indices powered about 3 per cent higher, while the dollar retreated against the euro and other currencies.
Art Hogan, strategist at National Securities, said the Fed's decision met expectations but contained "no hawkish surprise", adding that stocks could push higher in the coming sessions.
Some analysts have viewed the stock market as positioned for a potential rally after suffering deep losses in April amid worries over the Fed.
The central bank's announcement followed data showing slowing growth in the US services sector and lackluster private-sector hiring that reflected limited labour capacity. The report comes ahead of Friday's closely-watched government jobs data.
In earlier trading, European stocks closed down, after a broadly downbeat session in Asia, although key bourses including Shanghai and Tokyo remained shut.
Oil prices rebounded sharply after the European Commission proposed a gradual ban on Russian crude over Moscow's invasion of Ukraine.
The Fed announcement is due one day before the Bank of England is also predicted to deliver a hike.
India's central bank unexpectedly ramped up its key rate by 40 basis points to 4.4 per cent on Wednesday.
Policymakers are seeking to tackle runaway prices but risk damaging global economic recovery from the pandemic.
Investor sentiment also remains dogged by the fallout from Russia's ongoing Ukraine invasion, which has fueled bumper gains for many raw materials including crude.
