U.S. stocks cut their losses and moved higher on Wednesday as investors digested the latest policy move from the Federal Reserve.
The S&P 500 rose 0.3%, while the tech-heavy Nasdaq Composite was slightly positive. The Dow Jones Industrial Average added 75 points. All three were in negative territory for the day before the central bank’s decision.
The Fed announced on Wednesday that it would wind down its asset purchases, a process known as tapering, at a faster pace amid a continued rise in inflation.
The move comes as the central bank is grappling with the highest inflation level in nearly four decades. The Fed was widely expect to accelerate its taper this month.
This sets the stage for a dramatic policy shift that will clear the way for a first interest rate hike next year. The central bank signaled that its members expected three hikes in 2022.
The Fed will conclude its two-day policy meeting on Wednesday and the public will hear from central bank Chairman Jerome Powell at a 2:30 p.m. ET news conference.
“While the chairman is not likely to suggest any specific timeframe for when the funds rate will begin to be lifted, he probably will confirm that some members do want to move more quickly than previously announced in raising interest rates,” said Jim Paulsen, chief investment strategist for Leuthold Group.
“I would not expect the Fed to say much that is not already anticipated by the financial markets,” Paulsen added. “Some of the recent stock market volatility may lessen after this two-day meeting and its press conference is finally concluded.”
While the Fed meeting is in focus, investors are also monitoring the new Covid variant omicron. The World Health Organization on Tuesday warned the new Covid-19 omicron variant is spreading faster than any previous strain, and is likely in most countries of the world. The United Kingdom on Wednesday reported its highest number of daily cases since the pandemic began.
Energy stocks struggled on Wednesday morning ahead of the Fed announcement, with Occidental Petroleum and Baker Hughes falling more than 4%. Shares of Amazon fell more than 2%. Boeing was one of the worst performers in the Dow, falling about 2.5%.
Meanwhile, defensive plays like health care outperformed, with shares of Eli Lilly climbing 9% after saying it expected stronger earnings in 2022.
Retail sales for November came in worse than expected, rising 0.3% month-over-month. Economists surveyed by Dow Jones were looking for a 0.8% month.
On the political front, congressional Democrats passed a bill raising the debt ceiling, sending it to President Joe Biden early Wednesday just under the wire for when Treasury Secretary Janet Yellen said the government would run out of spending power.
Also hurting sentiment Tuesday was the hotter-than-expected inflation reading for November’s producer price index showing a year-over-year increase of 9.6%, the fastest pace on record. This was above the 9.2% expected by economists, according to Dow Jones. The index rose 0.8% month over month, above the 0.5% expected.