Wall Street Rises After Three Weeks of Decline, Focus on Fed

Last week, stock indices on Wall Street rose after three weeks of decline, but trading was uncertain as the U.S. central bank will continue to raise interest rates due to elevated inflation.

On Wall Street, Dow Jones increased by 1.75 percent to 33,390 points, while S&P 500 rose by 1.9 percent to 4,045 points, and the Nasdaq index increased by 2.6 percent to 11,689 points.

In recent weeks, trading on the world’s largest stock exchange has been unstable as inflationary pressures in the U.S. are not easing as quickly as investors had hoped. Therefore, it is increasingly likely that the U.S. central bank will raise interest rates to higher levels than the market expected and keep them elevated longer than anticipated.

Investor attention is primarily drawn to the messages from Fed leaders. For example, on Wednesday, stock prices fell after Neel Kashkari, president of the Fed branch in Minneapolis, stated that he is prepared for an interest rate increase at the March meeting of either 0.25 or 0.50 percentage points.

On Thursday, however, stock indices rose after Raphael Bostic, president of the Fed in Atlanta, said that the central bank should raise rates by 0.25 percentage points in March. He explained that he advocates for a gradual and measured tightening of monetary policy, rather than a sharp increase as seen last year.

Although a slower pace of interest rate increases is possible, expectations regarding the final rates have not changed. The money market estimates that the Fed will raise interest rates at least in two or three more instances, to a range of 5.50 to 5.75 percent by September, while currently, these rates are between 4.50 and 4.75 percent.

An increase in interest rates will weaken consumption, and thus the economy, so the question is only whether a shallow recession or a ‘soft landing’ of the economy will follow.

– It all depends on the Fed and how successfully it can slow down the economy. The Fed tells the markets what they want to hear, but also warns that rates will have to rise, depending on economic indicators, says David Carter, director at JPMorgan Private Bank.

Stock prices also rose on European exchanges last week. The London FTSE index increased by 0.9 percent to 7,947 points, while the Frankfurt DAX rose by 2.4 percent to 15,578 points, and the Paris CAC increased by 2.2 percent to 7,348 points.