Written by Edward Smith
Stocks are closing higher on Wall Street Wednesday following the release of minutes from the Federal Reserve’s most recent policy meeting. The S&P 500 rose 0.4%, the Dow Jones Industrial Average gained 0.2% and the Nasdaq rose 0.3%. The Russell 2000 index of small company stocks remained in the red, a sign that investors are worried about economic growth. The minutes of the two-day meeting last month show that Fed officials concluded higher interest rates could be needed to restrain what they saw as a worrying trend: consumers starting to anticipate higher inflation. Bond yields rose.
Stocks turned higher on Wall Street in choppy afternoon trading Wednesday following the release of minutes from the Federal Reserve’s most recent policy meeting.
The minutes of the two-day meeting last month show that Fed officials concluded higher interest rates could be needed to restrain what they saw as a worrying trend: consumers starting to anticipate higher inflation. The policymakers also acknowledged that more rate hikes could weaken the economy.
The S&P 500 was up 0.6% as of 2:52 p.m. Eastern after spending much of the morning and early afternoon wavering between gains and losses. The Dow Jones Industrial Average rose 132 points, or 0.4%., to 31,101, while the Nasdaq rose 0.7%.
Small company stocks remained in a slump, a sign that investors are worried about economic growth. The Russell 2000 shed 0.5%.
Technology and health care stocks accounted for a big share of the benchmark S&P 500 index’s gains. Cisco Systems rose 2% and Pfizer added 1.5%.
Only energy sector stocks, which lost ground along with crude oil prices, remained in the red. Hess dropped 3.1%.
Bond yields rose significantly. The yield on the 10-year Treasury, which helps set mortgage rates, jumped to 2.91% from 2.81% late Tuesday.
Major indexes have swung from sharp losses to gains on a day-to-day and even hour-to-hour basis, reflecting investors’ worries about inflation, rising interest rates and a potential recession.
The broader market, though, is still mired in a deep slump that has dragged the S&P 500 into a bear market, over 20% below its most recent high.
Wall Street’s key concern centers around the Federal Reserve’s effort to rein in inflation, and the risk its plan could send the economy into a recession.
Inflation has squeezed businesses and consumers throughout the year. Its grip tightened after Russia invaded Ukraine in February and as China locked down several key cities to contain rising COVID-19 cases, which worsened supply chain problems.
Surging oil prices worsened inflation by sending gasoline prices in the U.S. to record highs. The price of U.S. crude oil is still up 36% for the year, but has been slipping throughout the week in a welcome sign for a market hoping for any signal that inflation could be easing.
U.S. crude oil fell 1% Wednesday afternoon. The price on Tuesday settled below $100 a barrel for the first time since early May.
Central banks have been raising interest rates in an attempt to temper inflation. The Fed has been particularly aggressive in its shift from historically low interest rates at the height of the pandemic to unusually big rate increases now. That has raised concerns that the central bank could go too far, hitting the brakes too hard on economic growth and bringing on a recession.
After last month’s meeting, the Fed raised its rate by three-quarters of a point to a range of 1.5% to 1.75% — the biggest single increase in nearly three decades — and signaled that further large hikes would likely be needed.
The minutes from the Fed’s June 14-15 meeting show that officials agreed that the central bank needed to raise its benchmark interest rate to “restrictive” levels that would slow the economy’s growth and “recognized that an even more restrictive stance could be appropriate” if inflation persisted.
The recent pullback in energy prices could mean lower gas prices in a few weeks and could signal that inflation is peaking, along with a cooling housing market.
“This takes the pressure off the Fed,” said Katie Nixon, chief investment officer for Northern Trust Wealth Management. “If we can see gas prices go down, that will pull through to consumer sentiment and that could give the Fed the ability to at least take some of the pressure off.”
Investors are closely monitoring economic data for clues about inflation’s impact, its trajectory, and what that means for the Fed’s position moving forward. A government report on job openings in May beat economists’ expectations in a sign that the employment market remains healthy. A report on the U.S. services industry showed that the sector’s growth slowed less than expected in June.
Wall Street will be closely watching the U.S. government’s release of employment data for June on Friday.
European markets closed broadly higher.
The euro is at a 20-year low to the dollar on worries over disruptions to energy supplies. European Commission chief Ursula von der Leyen said the 27-nation European Union needs to make emergency plans to prepare for a complete cut-off of Russian gas amid the Kremlin’s war on Ukraine.