Stocks surge as Fed Chair Jerome Powell signals further rate hikes ‘unlikely’

Investors breathed a sigh of relief Wednesday after the Federal Reserve signaled that the central bank’s next move was unlikely to be a rate hike.

The Fed held interest rates steady on Wednesday, raising a red flag on recent disappointing inflation data and extending a wait-and-see stance that could stretch into later this year.

But in an afternoon press conference, Fed Chair Jerome Powell downplayed the possibility of further rate hikes — a risk that has increasingly worried investors as signs of persistent inflation have continued to crop up.

“It’s unlikely that the next policy rate move will be a hike,” Fed Chair Jerome Powell said in a news conference after the Fed announced it would keep rates steady. “I’d say it’s unlikely.”

Powell’s comments gave the Dow Jones Industrial Average an initial surge — soaring by more than 500 points — before the exhilaration dissipated to close in the green by 87.37.

The S&P 500 was up nearly 0.8% and the tech-heavy Nasdaq index rose by more than 1% during Powell’s news conference, but both finished the day in the red.

The Fed’s latest policy statement, issued at the end of a two-day meeting, kept key elements of its economic assessment and policy guidance intact, noting that “inflation has eased” over the past year, and framing its discussion around the conditions under which borrowing costs can be lowered.

Still, Fed officials emphasized their concern that the first months of 2024 have done little to build the confidence they seek in falling inflation.

“In recent months, there has been a lack of further progress towards the Committee’s 2% inflation objective,” the Fed said in the statement.

Where the prior statement in March suggested an improving dynamic, saying that the risks to the economy “are moving into better balance,” the new statement hinted that the process may have stalled with its assessment that risks “have moved toward better balance over the past year.”

Powell acknowledged that the tight monetary policy was restrictive but that “over time” they will prove sufficiently restrictive — an indication that the central bank is not considering raising rates.

“We believe it is restrictive,” Powell said. “And we believe, over time, it will be sufficiently restrictive. That will be a question that the data will have to answer.”

Wall Street traders now envision just a single rate cut this year to the Fed’s benchmark rate, now at a 23-year high after 11 hikes that ended last July.

Traders have sharply downgraded their expectations since 2024 began, when they had expected up to six rate cuts.

As recently as the Fed’s last meeting March 20, the policymakers themselves had projected three rate reductions in 2024.

Rate cuts by the Fed would lead, over time, to lower borrowing costs for consumers and businesses, including for mortgages, auto loans and credit cards.

Most economists say they still expect two cuts this year. But many acknowledge that one or even no rate reductions are possible.

The reason is that elevated inflation is proving more persistent than almost anyone had expected.

According to the Fed’s preferred gauge, inflation reached a 4.4% annual rate in the first three months of this year, up from 1.6% in the final quarter of 2023 and far above the Fed’s 2% target.

With Post Wires