Stocks Rally After Fed Takes Aggressive Stance, 75 Basis Points Rate Hike

Barry Adams
15 Jun, 2022
New York City

Stocks rallied after the Federal Reserve lifted rates at a faster pace and reiterated its commitment to fight inflation. 

The Federal Reserve set the new target range between 1.5% and 1.75% and said the rates are likely to be at 3.4% by the year's end. 

The S&P 500 index increased 1.3% to 3,785.83 and the Nasdaq Composite index rose 2.4% to 11,086.37.

Futures of crude oil declined $3.01 to $115.91 a barrel but natural gas increased 27 cents to $7.46 a unit. 

The yield on 10-year Treasury notes edged lower to 3.33%. 

The widely anticipated interest rate increase of 75-basis-points met investors' expectations bolstering trading sentiment. 

The Federal Reserve lifted its key benchmark rate most aggressively since 1994 and signaled it will continue its policy of tightening at a faster pace in taming 40-year high inflation. 

At the end of the two-day meeting, the policy members voted in favor of lifting rates by 75-basis-points and set the new fed funds range between 1.5% and 1.75%. 

The monetary policy committee reaffirmed its commitment to continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities as laid out at the end of the May meeting. 

The Federal Reserve also lowered its 2022 growth projection to 1.7% from 2.8% and lifted the unemployment rate estimate to 3.7% from 3.5% estimated in March. 

 

Retail Sales Turn Negative, Weaker Builders Sentiment

 

Retail sales turned negative as consumers curtail discretionary spending, the Commerce Department said today. 

On a monthly basis, advance retail and food services sales fell 0.3% in May and excluding auto increased 0.5%. 

Sales were lower from the downwardly revised 0.7% from 0.9% increase in April. 

On a yearly basis, retail sales rose 8.1% as consumers dipped in savings to keep up with price increases. 

Home builders sentiment index declined for the sixth month in a row as buyers stayed away after mortgage rates escalated in the last five months. 

The National Association of Home Builders/Wells Fargo Housing Market Index decreased 2 points to 67 in June as home prices hovered near record levels and mortgage rates more than doubled. 

 

European Markets Advance After ECB Emergency Meeting 

 

The European market indexes advanced after an emergency of the policy committee of the European Central Bank. 

The DAX index jumped 1.4% to 13,485.29, the CAC-40 index gained 1.4% to 6,030.13, and the FTSE index increased 1.2% to 7,273.41. 

The European Central Bank said it plans to release a new tool to tackle widening sovereign bond yields and ease the debt crisis in the currency zone. 

The yield on 10-year German Bund trade around 1.60% but the yields on similar maturities of Italian bonds surged above 4% and of Greek bonds hovered near 7%. 

The central bank plans to reinvest redemptions from the proceeds of its emergency bond purchasing program in a flexible way. 

The central bank set no limit for the purchase amount. 

 

China Data Shows Optimism, Japan Awaits BOJ Decision 

 

Markets in Asia reacted to local news and awaited rate decisions in the U.S. on Wednesday and Japan on Friday. 

The Nikkei index declined 1.1% to 26,326.16, the Hang Seng Index gained 1.1% to 21,308.21, and the Sensex index eased 0.3% to 52,541.39. 

Indexes in China closed higher after industrial production increased in May and retail sales fell less than expected. 

Industrial production rose 0.7% in May after falling 2.9% in April and retail sales declined 6.7% after dropping 11.1% in April,  the the National Bureau of Statistic reported today. 

The data were supported by the gradual relaxing of pandemic restrictions.