Fed Raises Rates As Job Gains, US Markets Rally

Fed Raises Rates As Job Gains, US Markets Rally

The US Federal Reserve raised interest rates on Wednesday for the second time in three months, a move spurred by steady economic growth, strong job gains and confidence that inflation is rising to the central bank's target. The decision to lift the target overnight interest rate by 25 basis points to a range of 0.75 percent to 1.00 percent marked a convincing step in the Fed's effort to return monetary policy to a more normal footing.

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The Dow Jones Industrial Average rose 112.73 points, or 0.54 percent, to close at 20,950.1, the S&P 500 gained 19.81 points, or 0.84 percent, to 2,385.26 and the Nasdaq Composite added 43.23 points, or 0.74 percent, to 5,900.05. The Russell 2000 index of small-cap stocks rose 1.5 percent, while financials on the S&P 500 were the worst-performing sector.

It’s not the first rate hike of 2017 that’s got the dollar tumbling and Treasuries rallying with equities. Instead, markets are reacting to Federal Reserve officials’ forecast that rates will rise three times this year, which is in line with its outlook from December. Some investors had thought policy makers might change it to four increases.

The markets are excited - bonds, stocks, gold and everyone shorting the dollar - because the Fed didn’t change their plan and remain on pace with the 3 hikes this year total they promised. Investors anticipated the tightening. In fact, Treasury yields had climbed with the dollar on speculation the central bank might signal a faster pace. But those trades unwound quickly Wednesday afternoon.

In other news, US retail sales recorded their smallest gain in six months in February, setting US gross domestic product on track to grow at a 0.8 percent annualized pace in the first quarter, according to the Atlanta Fed's latest forecast.

Energy stocks boosted the S&P 500 as oil prices rose for the first time in more than a week on a surprise drawdown in US crude inventories. US crude CLc1 gained 2.7 percent to $49.01 per barrel and Brent LCOc1 added 2.1 percent to $51.99. Exxon shares rose 1.2 percent and Chevron added 1.4 percent.

Apple was up 1.1 percent at $140.46 after RBC raised its price target on the stock. Twitter was down 1.9 percent at $15.03 after a number of prominent accounts on the microblogging website were hacked.

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