Stocks rallied the most since May 2020 and Treasury yields fell after Federal Reserve Chair Jerome Powell eased concern the central bank will embark on a more aggressive pace of tightening after delivering its steepest rate increase in two decades.

Traders pared their bets on a bigger June hike after Powell said there was “a broad sense on the committee that additional 50 basis-point increases should be on the table for the next couple of meetings.” He also dashed speculation that the Fed was weighing an even larger hike of 75 basis points in the months ahead, saying that it is “not something that the committee is actively considering.” The dollar had its largest decline in two months.

The Federal Open Market Committee voted unanimously to increase the benchmark rate by a half percentage point. It will begin allowing its holdings of Treasuries and mortgage-backed securities to decline in June at an initial combined monthly pace of US$47.5 billion, stepping up over three months to US$95 billion.

Comments: 

• “This is what it sounds like when doves FLY!” wrote Cliff Hodge, chief investment officer at Cornerstone Wealth. “The key takeaway from the press conference for the markets is that 75 basis points is off the table. The Fed is also optimistic that inflation will ‘flatten out’ over the coming months.”
• “Hiking rates at 50 basis points per meeting is fairly benign considering that market expectations are already priced in. What matters more is where the direction of inflation is headed once the lagging Fed policy has caught up,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.
• “Signaling a series of 50bp moves might be the compromise against doing 75bps in one meeting,” said Neil Dutta, head of economics at Renaissance Macro Research, who noted that the markets had been priced for “peak hawkishness.”

Before the Fed decision, JPMorgan Chase & Co.’s chief Jamie Dimon said the U.S. central bank should have raised rates sooner as price pressures hit the global economy. Treasury Secretary Janet Yellen sees a possible “soft landing” as the Fed moves to bring down inflation. “I do believe we’re going to see solid growth in the coming year,” she said in an interview at a Wall Street Journal event on Wednesday. 

Corporate highlights:

• Lyft Inc. and Uber Technologies Inc. reported quarterly results that pointed to strong demand for rides, but failed to reassure Wall Street that a driver shortage that’s cost the companies hundreds of millions of dollars in bonuses was abating.
• Moderna Inc. reported revenue that beat expectations, but said its COVID vaccine purchase orders for 2022 were unchanged from what it reported three months ago.
• Marriott International Inc.’s earnings topped expectations as avid vacationers bid up room rates, advancing the lodging recovery.

Some of the main moves in markets:

Stocks

• The S&P 500 rose 3 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 3.4 per cent
• The Dow Jones Industrial Average rose 2.8 per cent
• The MSCI World index rose 1.9 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.9 per cent
• The euro rose 0.8 per cent to US$1.0608
• The British pound rose 0.9 per cent to US$1.2616
• The Japanese yen rose 0.7 per cent to 129.17 per dollar

Bonds

• The yield on 10-year Treasuries declined five basis points to 2.92 per cent
• Germany’s 10-year yield was little changed at 0.97 per cent
• Britain’s 10-year yield was little changed at 1.97 per cent

Commodities

• West Texas Intermediate crude rose 5.4 per cent to US$107.95 a barrel
• Gold futures rose 0.7 per cent to US$1,884.30 an ounce