Stocks and bonds jump as Powell eases mega-hike fears

The Fed’s half-point hike was the largest since 2000. It signaled similar moves over the next two meetings in a campaign against high inflation.

Chairman Jerome Powell also said a 75 basis point change is “not something the committee is actively considering,” spurring the markets rally. He indicated that policymakers consider the “neutral” level for the federal funds rate to be 2% to 3% – within expectations for 2022, which further strengthens sentiment.

“The market had pretty much fully priced in to stocks today,” Doubleline Group LP fund manager Ken Shinoda said on Bloomberg Television. “In fact, I think today’s actions were a bit less hawkish than some may have anticipated.”

The U.S. central bank will also allow its holdings of Treasuries and mortgage-backed securities to decline in June at an initial combined monthly pace of $47.5 billion, rising three months to $95 billion.

Market reaction is likely to evolve as investors digest Powell’s comment. A global wave of monetary tightening accompanied by commodity-fueled price pressures could further hurt economic growth, Russia continues its war in Ukraine and China grapples with Covid lockdowns.

The oil and wheat rallies underscored these risks. Crude rose above $107 a barrel under a European Union plan to ban Russian barrels over the next six months. Wheat rose on the possibility of curbing exports by the major Indian producer.

‘Too optimistic’

“The market is far too optimistic about the Fed’s ability to control inflation,” Nancy Davis, chief investment officer at Quadratic Capital Management LLC, said in a note. “We may be facing an environment of stagflation.”

Chinese markets resumed trading on Thursday after a three-day pause amid lingering skepticism about whether Beijing is doing enough to support slowing growth and ease regulatory restrictions.

Later in Europe, the Bank of England is expected to raise interest rates to their highest level in 13 years and clarify how it plans to sell some of its 847 billion pounds ($1.1 trillion) of government bonds.

Japan is closed for a public holiday, excluding cash treasury bill trading in Asia.

Garland K. Long