By Andrea Riquier and Joy Wiltermuth
U.S. stocks pushed higher Wednesday, reversing earlier losses, after Federal Reserve policy makers left the central bank’s easy money stance in place, saying they expect no policy interest rate hikes through 2023, even if inflation overshoots 2%.
How did major benchmarks do?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.04% rose 189.42 points, or 0.6%, to end at a record 33,015.37, after hitting a new fresh intraday record of 33,047.58.
The S&P 500 /zigman2/quotes/210599714/realtime SPX +0.19% rose 11.41 points, or 0.3%, closing at a record 3,974.12, after setting an intraday all-time high of 3,983.87.
The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.35% index gained 53.64 points, or 0.4%, finishing at 13,525.20.
Stocks ended mostly lower Tuesday, with the Dow falling 127.51 points, or 0.4%, and the S&P 500 edging down 0.2% after closing at records in the previous session. The Nasdaq Composite held on to a gain of 0.1%.
What drove the market?
Stocks rallied after the Fed said it plans to hold its policy interest rates near zero through 2023 and made no changes to its monthly asset purchases , but signaled that inflation could slightly overshoot its 2% target.
The central bank also marked up GDP growth this year to a 6.5% annual rate and said core inflation would rise slightly above the central bank’s 2% target. Seven of 18 Fed officials also penciled in a rate hike in 2023, up from 5 at the last “dot-plot” in December, while four officials expect a rate hike in 2022, up from one member in the December forecast.
Fed Chairman Jerome Powell again stressed that the Fed is willing to wait to adjust its dovish policy until the labor market recovers, adding that the U.S. still has 9.5 million fewer jobs from pre-pandemic levels.
“All in all, this was pretty close to what we were expecting,” Kathy Jones, chief fixed income strategist at Charles Schwab, told MarketWatch. “Markets were concerned the Fed would shift its view more aggressively,” she said. “But the message is still that this is an incomplete recovery and we’re going to wait.”
Analysts have been forecasting a surge in economic growth as vaccine rollouts finally quell the pandemic and as another $1.9 trillion of COVID aid starts to hit bank accounts , boosting spending and lifting inflation expectations.
Since the Fed last released forecasts in December, the yield on 10-year U.S. Treasury note has risen by about 0.7 percentage point as investors have priced in higher interest rates and inflation. That in turn has contributed to a rotation away from previously highflying growth stocks toward more cyclically sensitive stocks.
“It’s a really weird environment,” said Anthony Denier, chief executive officer of trading platform Webull, adding that while most people expect U.S. economic data to be much improved a year from now, that they also want the tell the Fed: “please don’t take your foot off the gas.”
Powell also said, in an afternoon press conference, to expect a coming announcement about bank capital rules regarding the Supplementary Liquidity Ratio (SLR), potentially worrisome point for debt markets. The SLR was introduced at the start of the coronavirus pandemic to encourage big banks to lend and support bond and short-term funding markets, by allowing their balance sheets to expand without the need to raise extra capital. The rule is set to expire on March 31.