Updated May 4, 2022 - Economy

Stocks breathe a sigh of relief after Fed hike

Illustration: Shoshana Gordon/Axios

Stocks jumped on Wednesday after the Federal Reserve meted out its biggest interest rate hike since 2000, with the S&P ending the session nearly 3% higher.

Why it matters: The Fed is moving to bring down inflation levels the economy hasn't seen in decades. That has made Wall Street hyper-sensitive to just how high rates could go in the coming months, especially with the expansion showing signs of wear.

Driving the news: By hiking borrowing costs to combat surging inflation, the Fed signaled future rate hikes would be measured rather than aggressive, as some investors have feared.

  • In his press conference, Fed chair Jerome Powell ruled out a 3/4 percentage point hike as "not something that committee is actively considering."
  • However, Powell still characterized inflation as "much too high," with the policy-setting Open Market Committee moving "expeditiously" to bring it down, Axios' Neil Irwin points out.

What they're saying: Markets have been volatile in recent sessions, as investors debate whether the coming tightening cycle was at risk of creating a recession.

  • "Whatever more hawkish moves the Committee had contemplated for today, the stock market rout the last week may have led them to a more measured, gradual pace of rate hikes," according to Chris Rupkey, chief economist at FWDBONDS.
  • "The trick is to tighten financial conditions, but not be too aggressive with too many rate hikes that precipitate a disorderly market meltdown that destroys business and consumer confidence," Rupkey wrote in a research note on Wednesday.
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