The Fed delivered the biggest rate hike in over two decades, and the stock market seemed to love it.
Why it matters: The rally, after a dreadful month, suggests many had thought the Fed would threaten even harsher rate hikes in the future, to tamp down sizzling inflation.
- When Powell declined to do so, a relief rally ensued.
State of play: The S&P 500 rose roughly 3% on Wednesday — the strongest daily gain for the index in nearly two years.
- The tech-laden Nasdaq composite index jumped 3.2%.
What happened: Shortly after the press conference began at 2:30 p.m., equity markets shifted into overdrive.
- Why? The Fed chief told a reporter: "[A] 75 basis point increase is not something the committee is actively considering."
Between the lines: In recent weeks, a hike of that magnitude was seen as a real possibility — but some investors worried such an aggressive hiking trajectory would hasten a hard landing for the economy.
- Five-year and seven-year Treasury bond yields declined sharply after the comment, suggesting some had been betting on those larger hikes in coming meetings.
The bottom line: In the world of financial markets, everything is relative. And as far as the market is concerned, the Fed's tone could have been a lot worse.
