Passengers leave a Wall Street subway station near the New York Stock Exchange.
Michael Nagle | Bloomberg | Getty Images
Futures contracts linked to major US stock indices rose early on Wednesday night, after the Federal Reserve said hours before it does not expect to raise interest rates until 2023.
Fed Chairman Jerome Powell reiterated that the central bank wants to see inflation consistently above its 2% target and a significant improvement in the US labor market before considering changes in rates or its monthly bond purchases.
Dow futures are up 45 points and suggest a similar gain when regular trading resumes on Thursday. The futures for the S&P 500 and Nasdaq 100 were traded just north of their flat lines.
The main message of Wednesday’s Fed meeting “is that the committee expects to be extraordinarily accommodating for a long time, even as the economic outlook improves,” wrote Eric Winograd, senior economist at AB.
“The FOMC shares the market’s view that growth and inflation should recover as activity increases in 2021, but does not see this increase in activity as durable,” he added.
After-hours changes occur after a stock market crash at the end of the day, during Powell’s statements.
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 hit a record close and rose 0.3% to 3,974, after falling 0.7% at the start of Wednesday’s session.
The Nasdaq Composite, which had fallen by 1.5%, eliminated its initial losses and closed the day up 0.4% at 13,525.20. The technology heavy benchmark was under pressure on Wednesday morning, with rising bond yields undermining growth stocks.
Announcements by the Fed and its leader dictated negotiations on Wednesday after the Fed raised its economic outlook to reflect expectations of a stronger recovery, while suppressing investors’ concerns that it might abandon its monetary policy easy before expected.
The Fed said it expects to see gross domestic product grow 6.5% in 2021, before cooling in later years and inflation rising 2.2% this year, as measured by spending on personal consumption. The central bank’s stated goal is to keep inflation at 2% in the long run.
But Powell was able to convince traders that the Fed would need to see a material and sustained upward movement in prices and a sharp drop in unemployment before discussing changes in its current easy policy stance.
The Fed expects to continue the easy monetary policy “for several quarters, to bring the basic interest rate to zero in the foreseeable future and to keep the basic interest rate well below neutral for several years,” added Winograd of AB. “This is an exceptionally long period of extraordinarily accommodative policy.”
The 10-year Treasury yield came out of its peak the day after the central bank was updated. The rate was last seen at 1.646%. At the start of the session, the reference rate jumped to 1.689%, reaching a level never seen since the end of January 2020.
Higher rates have been particularly detrimental to growth-oriented companies as they erode the value of future cash flows.
Tesla, for example, had dropped 3.8% on Wednesday before the Fed’s announcement, following the rise in long-term rates. The stock skyrocketed after the Fed launched and ended the session up 3.6% as yields declined.