Commuters leave a Wall Street subway station near the New York Stock Exchange.
Michael Nagle | Bloomberg | Getty images
Futures contracts pegged to major US stock indices rose during the overnight session Wednesday night after the Federal Reserve said hours earlier that it currently 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 material improvement in the US labor market before considering changes in interest rates or its monthly bond purchases.
Dow futures were up more than 100 points, suggesting a profit of a similar magnitude when regular trading resumes on Thursday. S&P 500 and Nasdaq 100 futures contributed 0.3% and 0.4%, respectively.
The key message of Wednesday’s Fed meeting “is that the committee expects to be extremely accommodative for a very long time to come, even as the economic outlook improves,” wrote Eric Winograd, senior economist at AB.
“The FOMC shares the market’s view that growth and inflation are likely to pick up if activity increases in 2021, but it does not see that increase in activity as sustainable,” he added.
The after-hour moves come after a late stock market rise during Powell’s comments.
The rebound brought the Dow Jones Industrial Average above 33,000 for the first time with a gain of 189 points. The S&P 500 was also record-breaking, rising 0.3% to 3,974 after falling 0.7% earlier during Wednesday’s session.
The Nasdaq Composite, which was down a whopping 1.5%, wiped out its early losses and finished the day 0.4% higher at 13,525.20. The technologically tough benchmark came under pressure Wednesday morning when rising bond yields held down growth stocks.
Announcements from the Fed and its leader dictated trading on Wednesday after the Fed adjusted its economic outlook to reflect expectations for a stronger recovery, while at the same time investing concerns that it could abandon its easy monetary policy earlier than expected. were taken away.
The Fed said it expects gross domestic product to grow 6.5% in 2021, before cooling in later years and inflation to rise 2.2% this year as measured by personal consumption. expenses. The central bank’s stated goal is to keep inflation at 2% over the long term.
But Powell managed to convince traders that the Fed should see a material and sustained price hike and a sharp drop in unemployment, before debating changes to its current easy policy stance.
The Fed expects to be able to maintain a loose monetary policy “for the coming quarters, leaving the policy rate at zero for the foreseeable future and keeping the policy rate well below neutral for a number of years,” added AB’s Winograd. “That is an exceptionally long period of unusually accommodative policy.”
The yield on 10-year Treasury bonds came from the highest level on the day after the central bank update. The rate was last seen at 1.646%. Earlier in the session, the benchmark rate jumped to 1.689%, a level unprecedented since the end of January 2020.
Higher interest rates have hurt growth-oriented companies in particular, as they erode the value of future cash flows.
Tesla, for example, was down 3.8% on Wednesday ahead of the Fed’s announcement, following the rise in long-term interest rates. The stock fell after the release of the Fed, ending the session 3.6% as interest rates fell.