Dow Jumps 300 Points After Powell Says Fed Could Hike Rates By 75 Basis Points Again In July

Topline

The stock market moved higher on Wednesday after the Federal Reserve raised interest rates by 75 basis points—the largest increase in 28 years, while Fed Chair Jerome Powell also signaled that the central bank could raise rates again by the same magnitude at an upcoming meeting next month.

The Fed raised interest rates more aggressively than forecast as markets continue to be gripped by … [+] recession fears.

Brendan Smialowski/Pool via ASSOCIATED PRESS

Key Facts

Stocks rebounded on Wednesday after five losing sessions in a row: The Dow Jones Industrial Average rose 1%, over 300 points, while the S&P 500 gained 1.5% and the tech-heavy Nasdaq Composite 2.5%.

The market rallied after the Federal Reserve announced it would raise interest rates by 75 basis points, the biggest increase since 1994, as it looks to combat red-hot inflation.

Investors had been betting on a 75-basis-point increase, rather than the previously expected 50-basis-point hike, after a much-hotter-than-expected inflation report last week showed consumer prices jumping 8.6% in May compared to a year ago.

Stocks especially got a boost after Fed Chair Jerome Powell said that the central bank will continue to hike rates aggressively, with a similar 75-basis-point increase under consideration for the next meeting in July.

The last time the Federal Reserve raised interest rates by 75 basis points was under the leadership of Alan Greenspan in November 1994, when the central bank orchestrated a soft landing and avoided a recession despite hiking rates seven times in 13 months.

Rates on government bonds moderated somewhat on Wednesday after surging higher earlier in the week, with the 2-year and 10-year Treasury yields recently hitting their highest levels since 2007 and 2011, respectively.

Crucial Quote:

“Today’s announcement confirms the Fed’s commitment to fight the inflation battle more aggressively despite the potential aftermath from raising rates at such a rapid pace,” says Charlie Ripley, senior investment strategist for Allianz Investment Management. “Overall, Fed policy rates have been out of sync with the inflation story for some time and the aggressive hikes from the Fed should appease markets for the time being.”

Contra:

“Don’t be fooled” by the rally on Wednesday—the overall attitude is “still very gloomy, and most people look at a recession and further equity downside as being inevitable,” says Vital Knowledge founder Adam Crisafulli. “The one area of anxiety concerns bear market rallies and there is a worry that one may happen at some point this week around the Fed (most people think any such rally will be ephemeral but violent).”

Tangent:

The price of Bitcoin, meanwhile, fell to around $21,000 as the cryptocurrency market continues to be hard-hit by a massive selloff this week as several firms halted exchanges or announced layoffs in what experts are calling a “crypto winter.”

Key Background:

The benchmark S&P 500 fell deeper into bear market territory on Tuesday, now sitting roughly 22% below its record highs in January. All three major averages are coming off the back of their worst down week since January, falling by roughly 5% or more after last week’s red-hot inflation report led to a spike in recession fears.