Stocks held on to their gains on Wall Street Wednesday after the Federal Reserve signaled it may begin easing its extraordinary support measures for the economy later this year. In a statement at 2pm Eastern, the central bank said it may start raising its benchmark interest rate sometime next year, earlier than it envisioned three months ago. An announcement could come as soon as November. Tech companies helped lead the gains, though Facebook fell 4%, per the AP. The S&P 500 rose 41.45 points, or 1%, to 4,395.64. The Dow Jones Industrial Average rose 338.48 points, or 1%, to 34,258.32. The Nasdaq rose 150.45 points, or 1%, to 14,896.85. The yield on the 10-year Treasury note wobbled up and down after the Fed’s announcement, but wound up little changed at 1.31%.
The Fed's plans reflect its belief that the economy has recovered sufficiently from the pandemic recession for it to soon begin dialing back the emergency aid it provided after the pandemic erupted, the AP reports. As the economy has steadily strengthened, inflation has also accelerated to a three-decade high, heightening the pressure on the Fed to pull back The Fed also said it will likely begin slowing the pace of its monthly bond purchases "soon" if the economy keeps improving. It's been buying the bonds to help keep long-term interest rates low.
The central bank's pullback in bond purchases and its eventual rate hikes, whenever they happen, will mean that some borrowers will have to pay more for mortgages, credit cards, and business loans. While the move "may cause some angst amongst investors over the short run, preparing to unwind the emergency monetary stimulus measures that have been in place for the last year-and-a-half is highly appropriate at this juncture,” says Charlie Ripley, senior investment strategist for Allianz Investment Management. (Read more stock market stories.)