Powell Raises a Half Percentage Point

U.S. stocks rallied, scoring their biggest one-day gain since 2020, after Federal Reserve Chairman Jerome Powell put to rest investors’ fears that the central bank might be considering bigger interest-rate increases in the coming months.

Major indexes were at first little changed Wednesday after the Fed announced it would raise interest rates by half a percentage point and begin to shrink its $9 trillion asset portfolio next month. Investors had widely expected both decisions heading into the conclusion of the central bank’s policy meeting.

What caught some by surprise was Mr. Powell saying the Fed wasn’t “actively considering” raising interest rates by 0.75 percentage point at a future meeting. Federal-funds futures, which traders use to track interest-rate expectations, had previously shown the market pricing in a 95% chance of the Fed making such a move in June.

Stocks soared after Mr. Powell’s remarks, with the Dow Jones Industrial Average finishing up 932.27 points, or 2.8%, to 34061.06, marking its biggest one-day gain since November 2020. The S&P 500 jumped 124.69 points, or 3%, to 4300.17 for its best day since May 2020, while the Nasdaq Composite added 401.10 points, or 3.2%, to 12964.86.

All three indexes had been down earlier in the day.

“There’s a sense of relief,” said Christopher Smart, chief global strategist and head of the Barings Investment Institute.

With stocks and bonds on shaky footing as of late, many investors had been worried that the pace at which the Fed tightens monetary policy would trip up markets. Others have been grappling with fears that the central bank, which is raising rates swiftly to try to tamp down inflation, may inadvertently tip the economy into recession.

The Fed’s messaging, however, helped put investor anxiety at ease, according to Mr. Smart.