The major domestic equity indexes ended the trading day on Wednesday, marginally higher after they gave up early gains because of the Fed saying it sees inflation rising this year, signaling that it remains on track to raise interest rates again in March.
The Fed kept rates unchanged but, in a statement following its two-day policy meeting, it repeated that it expected that “further gradual” rate hikes will be warranted. The Fed sees three additional hikes in 2018 even as it continues to trim its balance sheet on a largely pre-set schedule.
Bolstering the Fed’s view of a solid economy, ADP published a report on Wednesday showing 234,000 private sector jobs added in January compared with 185,000 expected by analysts. The Labor Department is due to release its more comprehensive report on Friday.
Stocks were lifted earlier Wednesday by a surge in Boeing, which forecast better-than-expected full-year earnings and said it expects to deliver a record number of commercial aircraft in 2018, sending its shares up 4.9 percent.
The aerospace giant was the largest percentage gainer on the Dow Jones Industrial Average, helping pull the blue-chip index out of its largest two-day plunge since September 2016.
The selloff earlier in the week had been prompted by an increase in Treasury yields to multi-year highs. The yield curve flattened to a decade low following the Fed statement as traders sold more short-dated Treasuries.
Facebook shares fell more than 4 percent in after-market trading after the social media giant reported results.
Among the S&P 500’s 11 major sectors, technology gave the technology sector’s index its largest increase.
Healthcare stocks continued to weigh on the three major indexes following a report on Tuesday that Amazon, Berkshire Hathaway and JPMorgan Chase were joining forces to cut healthcare costs for its domestic employees. The S&P 500 healthcare index fell 1.5 percent.
The Street’s current expectation is that fourth-quarter S&P 500 earnings will chalk up an increase of 13.7 percent, up from 12 percent expected at the start of the month. So far, 37 percent of companies in the index have reported and 80.5 percent have come in above consensus estimates.
Approximately 8.05 billion shares changed hands on the major domestic equity indexes, a number that was above the 7.18 billion share average for the past 20 trading sessions.
Janet Yellen’s Last Meeting Has the Fed Leaving Rates Unchanged
After its two-day meeting, the Fed stated that it sees inflation rising this year, signaling it remains on track to raise interest rates again in March. The Fed has kept rates unchanged but, in a statement following its policy meeting, it repeated that it expected that “further gradual” rate hikes will be warranted, bolstering expectations borrowing costs will continue to climb under incoming chair Jerome Powell.
Citing solid gains in employment, household spending and capital investment, the Fed said it expected the economy to expand at a moderate pace and the labor market to remain strong in 2018.
“Inflation on a 12-month basis is expected to move up this year and to stabilize” around the Fed’s 2 percent target over the medium term, the central bank said in a statement following a two-day policy meeting, the last under Fed Chair Janet Yellen.
It also said its rate-setting committee had unanimously selected Powell to succeed Yellen, effective Feb. 3. Powell, a Fed governor who has worked closely with Yellen, was nominated by President Donald Trump and confirmed by the U.S. Senate.
Powell is expected to hew closely to the policies embraced by Yellen, who spearheaded the gradual move away from the near-zero interest rates adopted to nurse the economy back to health and spur job growth after the 2007-2009 recession.
Fed policymakers have been encouraged in recent months as the economy picked up speed and the unemployment rate fell to a 17-year low of 4.1 percent.
The Fed, which raised rates three times last year and in December forecast three more hikes for this year, said on Wednesday it expected “further gradual” rate increases will be warranted. The target range for the federal funds rate currently is 1.25 percent to 1.50 percent.
The Fed’s gradual path of rate increases will hinge on a continued pickup in inflation, which has lingered below target despite a strong job market. Fed policymakers have said they expect an acceleration this spring, once short-term factors that held down inflation are squarely in the rear-view mirror.
In its statement, the central bank noted that market-based measures of inflation have increased in recent months.
The statement did not address the likely impact of the Trump administration’s tax overhaul on economic growth and gave no hint of concern about overshooting on inflation.
Several Fed policymakers recently have said they expected the tax changes, which include an estimated $1.5 trillion in corporate and individual tax cuts, to provide an economic lift by boosting business and household spending.
There were no dissents in the Fed’s decision on Wednesday.