Wall Street Rallies on Fed Chief Powell's Guidance

The S&P 500 and the Nasdaq rallied to higher closes Wednesday after Federal Reserve chair Jerome Powell acknowledged that inflation was starting to ease following a quarter-point rate hike by the U.S. central bank, which issued a statement that it expects "ongoing increases."

Wall Street's major indexes lost ground immediately after the statement and were volatile for a while, then started to regain ground in earnest after Powell responded to reporters roughly a half hour later.

Investors were encouraged by Powell's answer to a question, during his press conference - about easing financial conditions such as equities regaining ground and bond yields falling in recent months, according to Angelo Kourkafas, investment strategist at Edward Jones, St Louis.

"He had an opportunity to relay a hawkish message and didn't take it. He could've said that markets are getting overly excited and he didn't take the opportunity. Instead he said a lot of tightening has already happened," said Kourkafas.

And since Powell acknowledged disinflation investors saw his suggestion that there could be two more rate hikes as a "placeholder"" the strategist said.

According to preliminary data, the S&P 500 gained 42.89 points, or 1.05%, to end at 4,119.49 points, while the Nasdaq Composite gained 231.89 points, or 2.00%, to 11,816.44. The Dow Jones Industrial Average rose 15.75 points, or 0.05%, to 34,101.79.

The size of increase for its first policy meeting of the year was in line with expectations after rapid increases in 2022 aimed at taming decades-high inflation.

After the statement, money markets were betting on a terminal rate of 4.94% in June compared with 4.92% just before but U.S. futures were still pricing in rate cuts this year with the fed funds rate seen at 4.486% by the end of December, the same as before the meeting.

Recent readings have indicated that inflation is easing, with the Fed also looking at data that will determine the resilience of the labor market and the pace of wage growth.

But data showed U.S. job openings unexpectedly rose in December ahead of the Labor Department's comprehensive report on nonfarm payrolls for January due on Friday.

Separate economic data showed U.S. manufacturing contracted further in January as higher rates stifled demand for goods.

All three indexes had a strong start to the year, with the S&P and the Dow witnessing their first gain for January since 2019 as investors returned to markets, which were bruised in the previous year by a hawkish Fed.