S&P 500, Nasdaq end solidly higher as Fed enacts smaller rate hike

February 02, 2023: The S&P 500 and Nasdaq rallied on Wednesday after the Federal Reserve enacted a smaller interest rate hike, pointing to progress in its fight against inflation.

All three major indices finished higher, led by the tech-rich Nasdaq Composite Index, which jumped 2% to 11,816.32.

The Dow Jones Industrial Average rose less than 0.1% to 34,092.96, while the broad-based S&P 500 advanced 1.1% to 4,119.21.

The US central bank announced a quarter-point hike to the benchmark lending rate, taking the rate to a target range of 4.50%-4.75% and opting for a more traditional hike after a series of larger increases.

Fed Chair Jerome Powell said the central bank will need "substantially more evidence" to be confident that inflation is on a sustained downward path as the central bank signaled more hikes would be needed.

But analysts noted that the Fed's policy statement acknowledged progress in battling inflation, adding that Powell in his press conference avoided criticizing recent movements in financial markets that anticipate a more dovish posture by the US central bank.

"Powell was expected to adopt a confrontational tone today. He was supposed to scold traders for allowing financial conditions to reflect fewer fed funds hikes and easing later this year," said a note from FHN Financial's Chris Low.

"Powell said that while the Fed has a different forecast than the one implied by markets, he is not bothered by the divergence."

Art Hogan, an analyst at B. Riley Financial, contrasted Powell's tone with the one he set last August during a speech in Jackson Hole, Wyoming where he adopted a hawkish line on inflation after financial markets bet on an imminent pivot by the Fed.

On Wednesday, Powell led a "better than feared press conference that certainly acted as a tailwind for markets," Hogan said.

AFP/APP