Federal Reserve raised interest rates as per the market expectations and at the same time sent some soothing vibes about future rate hikes. The Fed raised rates by 0.5 per cent and signaled similar moves for the next couple of meetings. What boosted the market confidence was when Fed Chair Jerome Powell said that a 75 basis points hike is “not something that the committee is actively considering,” that ultimately spurred the market rally.
US Stocks rallied the most since May 2020 and Treasury yields fell after Fed eased concern of not being in favour of steeper rate hikes in future.
Nasdaq 100 rallied over 3 per cent per cent and is still 17 per cent lower since the beginning of January 2022. Starbucks Corp., Advanced Micro Devices, Airbnb, Match Group, Moderna Inc. Were the major gainers in the US stock market. S&P 500 and Dow 30 also jumped over 2.75 per cent with many top US stocks up by over 4 per cent in a day.
The Federal Open Market Committee (FOMC) seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent and anticipates that ongoing increases in the target range will be appropriate.
In addition, the Committee decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet.
Although overall economic activity edged down in the first quarter, household spending and business fixed investment remained strong. Job gains have been robust in recent months, and the unemployment rate has declined substantially. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.
The implications for the U.S. economy because of the invasion of Ukraine by Russia are highly uncertain. The invasion and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions.