The three major U.S. stock indexes were higher on Wednesday after the Federal Reserve raised U.S. interest rates by a quarter percentage point, as anticipated, but left its rate outlook for the coming years unchanged even as policymakers projected a short-term acceleration in U.S. economic growth. Having now raised its benchmark overnight lending rate three times this year, the Fed projected three more hikes in each of 2018 and 2019 before a long-run level of 2.8 percent is reached, unchanged from its last round of forecasts in September.
Kate Warne, investment strategist at Edward Jones in St. Louis said the Fed’s statement was “pretty much as expected” but slightly more dovish.
“So it’s not a big surprise but it’s a shift in the direction of saying the Fed is going to keep watching the data and if we don’t see higher inflation we could see fewer rate hikes in 2018,” said Warne.
At 2:14 p.m. (1914 GMT), the Dow Jones Industrial Average was up 109.91 points, or 0.45 percent, at 24,614.71, the S&P 500 had gained 3.87 points, or 0.15 percent, to 2,667.98 and the Nasdaq Composite had added 21.42 points, or 0.31 percent, to 6,883.74. The S&P utilities sector hit a session high after the news as bond yields hit session lows. It was last up 0.5 percent.
Trading in the S&P financial sector was choppy after the news as banks are highly sensitive to interest rate changes. The index first reacted by paring losses before extending losses slightly as the session wore on. It was last down 0.59 percent. Investors were also focused on President Donald Trump’s administration’s efforts to overhaul the U.S. tax system.
Congressional Republicans reached a deal on final tax legislation on Wednesday according to Senate Finance Committee Chairman Orrin Hatch. And Trump said he would back a corporate tax rate of 21 percent. Earlier in the day a Labor Department report showed underlying consumer inflation slowed in November, possibly impacting the pace at which the Fed hikes rates. Investors also assessed Democrat Doug Jones’ victory in a bitter fight for a U.S. Senate seat in deeply conservative Alabama on Tuesday. Some participants said his win could mean trouble for Trump’s policy agenda as it narrows the Republicans’ already slim majority in the Senate.
Advancing issues outnumbered declining ones on the NYSE by a 1.31-to-1 ratio; on Nasdaq, a 1.83-to-1 ratio favored advancers. The S&P 500 posted 39 new 52-week highs and no new lows; the Nasdaq Composite recorded 57 new highs and 39 new lows.