US Equities Bounce As Powell Mitigates Hawkish Language

US stocks rebound in the Fed aftermath, S&P500 is 1.5% in the green territory. Ukraine/Russia peace talk hopes gain traction in global financial markets.

The S&P 500 is in the green by 1.6% and after the volatility surrounding the Federal Reserve that on Wednesday raised its benchmark lending rate for the first time since 2018, citing continued inflation pressures and saying the economic outlook remains “highly uncertain” amid the ongoing war between Russia and Ukraine.

By 19:40 GMT, the S&P 500 was at 4,328 and had traveled between a low of 4,251.99 and a high of 4,347.06. The US central bank increased the federal funds rate to a range of 0.25% to 0.5% from its prior range of zero to 0.25%. This was in line with the market consensus. However, the statement and dots were more hawkish than expected which initially drive down prices on Wall Street.

“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures,” the bank’s Federal Open Market Committee said in a statement after its two-day meeting. The Fed statement noted that the Ukraine war could lead to higher inflation and slower Gross Domestic Product.

It also stated that most Fed officials see as many as seven rate increases in 2022. The Fed explained that the economic activity and employment indicators have continued to gain strength, jobs gains have been sold in recent months, and the unemployment rate has fallen notably.

“The committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run,” the FOMC said. “With appropriate firming in the stance of monetary policy, the committee expects inflation to return to its 2 percent objective and the labor market to remain strong,” it added.

Separately, the Fed’s dot plot is penciling in rate hikes at every remaining meeting this year, pointing to a consensus funds rate of 1.9% by the end of this year. It sees three more increases in 2023 and then none the following year.

The committee members also raised their inflation estimates, expecting the personal consumption expenditures price index excluding food and energy to reflect 4.1% growth in 2022, compared to December’s 2.7% projection. Core PCE is expected to be 2.6% and 2.3%, respectively, in the next two years before settling to 2% over the longer term.

However, during the Fed chairman’s presser, Jerome Powell said rate rises will depend on inflation and economic data. He has stated that the Fed is looking for the MoM inflation to come down, pouring dovish water on what was a more hawkish statement. This helped US stocks rebound ad fall back in line with the broader relief rallies pertaining to hopes of peace talks between Ukraine and Russia.

Stocks got an initial boost on mounting hope that the Russia-Ukraine conflict could reach a negotiated end in the near future. However, signs that the Fed would aggressively raise interest rates, as part of a stepped-up campaign to control inflation, prompted selling in early afternoon action.

The slide proved short-lived, however, as the major averages recaptured their previous gains headed into the close. The Nasdaq (COMP.IND) +3.8%, S&P (SP500) +2.2% and Dow (DJI) +1.6%.

Looking at the day’s closing numbers, the S&P 500 advanced 95.41 points to finish at 4,357.86. The Dow climbed 518.76 points to end at 34,063.10. The Nasdaq concluded trading at 13,436.55, a rally of 487.93 on the session.

Eight of the 11 S&P sectors finished higher. Information Technology led the advance, with a rally of 3.3%. Energy, Consumer Staples and Utilities posted fractional declines.

Ukraine’s chief negotiator said it would give Kyiv binding international security guarantees to prevent future attacks. Ukrainian President Volodymyr Zelensky crosse the worse and explained that the peace talks between Russia and Ukraine were sounding more realistic. However, he added that more time was needed, as Russian airstrikes killed five people in the capital Kyiv and the refugee tally from Moscow’s invasion reached 3 million.