Commuters leave a Wall Street subway station near the New York Stock Exchange.
Michael Nagle | Bloomberg | Getty Images
Futures on major US stock indices rose early in the session on Wednesday night after the Federal Reserve said a few hours earlier that interest rates are not currently expected to rise until 2023.
Fed Chairman Jerome Powell reiterated that the central bank wants to see inflation steadily above the 2% target and material improvement in the US labor market before considering rate changes or its monthly bond purchases.
Dow futures rose 45 points and suggest a similar gain when regular trading resumes on Thursday. The S&P 500 and Nasdaq 100 futures traded just north of their fixed line.
The key message from Wednesday’s Fed meeting “is that the committee expects it to be extraordinarily accommodating for a very long time, even if the economic outlook is brightening,” wrote Eric Winograd, a senior economist at AB.
“The FOMC shares the market’s view that growth and inflation will return as activity grows in 2021, but does not consider growth to be sustainable,” he added.
The after-hours moves come after a revolution in the late stock market during Powell’s remarks.
The rise pushed the Dow Jones industrial average to its first close above 33,000, with a gain of 189 points. The S&P 500 also closed record high and rose 0.3% to 3,974, after falling 0.7% earlier in Wednesday’s session.
Nasdaq Composite, which fell by up to 1.5%, erased its early losses and ended the day 0.4% higher at 13,525.20. The technology benchmark was under pressure on Wednesday morning, while rising bond yields affected growth stocks.
Fed and leader announcements dictated trading on Wednesday after the Fed updated its economic outlook to reflect expectations for a stronger recovery, while at the same time raising investors’ concerns that it could give up light monetary policy sooner. than expected.
The Fed said it expects gross domestic product to rise by 6.5% in 2021 before cooling in the coming years, and inflation to rise by 2.2% this year, as measured by personal consumption spending. The central bank’s stated goal is to keep inflation at 2% in the long run.
But Powell has managed to convince traders that the Fed should see a material and sustained rise in prices and a sharp drop in unemployment before debating changes to its current lightweight policy stance.
The Fed expects to continue a light monetary policy “for a few quarters, to leave the policy rate at zero for the foreseeable future and to keep the policy rate well below neutral for several years,” added Winograd of the AB. “This is an extremely long period of extraordinarily accommodative politics.”
The 10-year treasury yield peaked the day after the central bank’s upgrade. The rate was last seen at 1.646%. At the beginning of the session, the reference rate jumped to 1.689%, reaching an unprecedented level at the end of January 2020.
Higher rates have particularly affected growth-oriented companies as they erode the value of future cash flows.
Tesla, for example, was down 3.8% on Wednesday ahead of the Fed’s announcement of long-term rate hikes. The stock appeared after the Fed’s launch and ended the session with 3.6%, as yields fell.