Stocks shook off an afternoon stumble and ended higher on Wall Street Wednesday after the Federal Reserve announced its first interest rate hike since 2018. Bond yields also rose as the Fed started to shift its policy to fighting inflation, the AP reports. The S&P 500 rose 95.41 points, or 2.2%, to 4,357.86. The Dow rose 518.76 points, or 1.5%, to to 34,063.10. The Nasdaq rose 487.93 points, or 3.8%, to 13,436.55, its biggest gain since Nov. 2020. Small company stocks also notched solid gains. The Russell 2000 index rose 61.75 points, or 3.1%, to 2,030.72.
As Wall Street largely anticipated, the central bank announced it was increasing its key short-term rate by 0.25 percentage points. The Fed, which has kept its rate near zero since the pandemic recession struck two years ago, also signaled potentially up to seven rate hikes this year. The Fed is trying to slow the economy enough to tamp down the high inflation sweeping the country, but not so much as to trigger a recession. It is part of a larger movement by central banks around the world to pull the plug on the support they poured into the global economy after the pandemic struck.
"Indicators of economic activity and employment have continued to strengthen. Job gains have been strong in recent months, and the unemployment rate has declined substantially," the Fed said in a statement after its policy meeting Wednesday. Fed Chair Jerome Powell said he believes inflation will come down in the second half of the year. "We are now seeing short-term upward inflation in oil prices, other commodities prices," he said. "You’re seeing supply chains around shipping and lots of countries and companies not wanting to touch Russian goods—that means more tangled supply chains." (Read more stock market stories.)