Wall Street points higher on modest Fed hike and sentiment
By YURI KAGEYAMA and MATT OTT
AP Business Writers
U.S. futures rose modestly Thursday, a day after the Federal Reserve raised its key interest rate while hinting that the end may be near for its economy-chilling policies.
Futures for the benchmark S&P 500 rose 0.5% before the bell, while the Dow Jones industrials edged up 0.2%.
The Fed raised its key overnight rate by a quarter of a percentage point Wednesday, the same size as its last increase, in its campaign to drive down inflation. That effort has been complicated by turmoil in the banking sector, with investors worried that more banks might fail after Silicon Valley Bank’s recent collapse.
The Fed’s move was exactly what Wall Street was expecting. The bigger question was where the Fed is heading next. There, the Fed gave a hint it may not hike rates much more as it assesses the fallout from the banking industry crisis.
Instead of repeating its statement that “ongoing increases will be appropriate,” the Fed said Wednesday that it now only sees “some additional policy firming may be appropriate.” Chair Jerome Powell emphasized the shift to ”may” from “will.”
The Fed also released the latest set of projections from its policy makers on where rates are heading in upcoming years. The median forecast had the federal funds rate sitting at 5.1% at the end of this year, up only a smidge from where it currently sits, in a range of 4.75% to 5%.
The yield on the two-year Treasury, which tends to track expectations for the Fed, tumbled to 3.46% from 4.13% just before the projections were released. It was back up to 3.98% early Thursday. It was above 5% earlier this month.
Powell said Wednesday the Fed is still focused on getting inflation down to its 2% goal and is not envisioning any rate cuts this year. He also said the Fed could begin raising rates again if high inflation makes that necessary.
The Fed was stuck with a difficult decision as it balanced whether to keep hiking rates or ease off the increases given the pain felt by banks. The second- and third-largest U.S. bank failures in history have both occurred in the last two weeks.
A worry is that too much pressure on the banking system, particularly among the smaller and mid-sized banks at the center of investors’ crosshairs, would mean fewer loans made to businesses across the country. That in turn could mean less hiring and less economic activity, pushing the risk of recession still higher.
Shares of Coinbase fell 11% before the bell Thursday after the cryptocurrency trading platform said it had been warned by the U.S. Securities and Exchange Commission that it could face securities charges.
In Europe, Britain’s FTSE 100 dipped 0.9% at midday, while Germany’s DAX fell 0.6%. France’s CAC 40 lost 0.5% in early trading.
Investors are awaiting an interest rate decision by the Bank of England. Many economists had expected the central bank to keep rates on hold, until the unwelcome news this week that soaring prices for vegetables helped push inflation to 10.4% in February.
Japan’s benchmark Nikkei 225 shed 0.2% to finish at 27,419.61. Australia’s S&P/ASX 200 slipped 0.7% to 6,968.60. South Korea’s Kospi gained 0.3% to 2,424.48.
Hong Kong’s Hang Seng gained 2.3% to 20,049.64 after China Evergrande Group, a real estate developer whose struggle to manage more than $300 billion in debt rattled global financial markets, announced a long-awaited plan to restructure what it owes to foreign bondholders.
The Shanghai Composite rose 0.6% to 3,286.65. Shares fell in India but rose in Taiwan.
In energy trading, benchmark U.S. crude fell 51 cents to $70.39 a barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the international standard lost 37 cents to $76.32 a barrel.
In currency trading, the U.S. dollar edged down to 131.31 Japanese yen from 131.39 yen. The euro cost $1.0878, up from $1.0857.
Kageyama reported from Tokyo; Ott reported from Silver Spring, Md.