NEW YORK, June 16 (ABC): Wall Street stocks welcomed aggressive moves by the Federal Reserve to counter inflation, while European equities also gained following an emergency central bank meeting to address fallout from monetary tightening.
The US central bank raised the benchmark borrowing rate by 0.75 percentage points, bigger than the telegraphed 0.5-percentage-point increase after economic data in recent days showed inflation strengthening and consumer confidence weakening.
Fed Chair Jerome Powell said the Fed has the “tools” and “resolve” to do what it takes to lower inflation from the highest level in more than 40 years, noting that the central bank could hike the benchmark interest rate by another 0.75 percentage points in July.
Powell emphasized that the Fed was not trying to induce a recession, but that aggressive measures were needed to counter inflation.
Stocks climbed after the Fed decision, strengthening somewhat during the news conference. The S&P 500, which tumbled into a “bear market” earlier this week, finished up 1.5 percent.
However, stocks also rallied after the Fed raised interest rates in May, only to weaken substantially in subsequent sessions.
“The market is getting comfortable with the idea that the Fed is now starting to take the inflation situation very seriously,” said Tom Cahill of Ventura Wealth Management, who nonetheless expressed skepticism that the Fed could achieve a “soft landing.”
Data released Wednesday showed US retail sales declined by 0.3 percent in May, confounding analysts who had expected a modest rise.
“These numbers were worse than expected and point to a US economy that appears to be weaker than thought,” said CMC Markets analyst Michael Hewson.
Wells Fargo economist Jay Bryson shifted his outlook from an economic soft landing to a “mild recession starting in mid-2023,” noting signs that inflation is becoming “increasingly entrenched in the economy” and cautioning that higher interest rates will curtail some spending.