The stock market finished slightly higher and government bond yields surged on Tuesday as investors assessed the Federal Reserve’s more aggressive stance on fighting inflation, with a growing number of Wall Street experts now forecasting the central bank to raise rates by a bigger-than-expected 0.50 % at its next couple of meetings.
Stocks bounced back after a losing session on Monday: The Dow Jones Industrial Average rose 0.7%, over 250 points, while the S&P 500 gained 1.1% and the tech-heavy Nasdaq Composite nearly 2%.
Markets rallied after recent comments from Federal Reserve Chair Jerome Powell, who reiterated on Monday that inflation is “much too high” and that the central bank will take “necessary steps”—including more aggressive rate hikes—to bring consumer prices back down.
Powell’s comments allow for the possibility of a bigger-than-expected half-percentage-point rate hike at the central bank’s next meeting, less than a week after the Fed raised rates for the first time since 2018.
An increasing number of Wall Street experts now see bigger rate hikes ahead: Goldman Sachs forecast a 0.50% increase at both the upcoming May and June meetings, while UBS chief economist Jonathan Pingle said in a note that the “odds of a 50 bp rate hike are rising.”
Government bond yields also moved sharply higher, with the rate on the benchmark ten-year US Treasury rising to a high of more than 2.35% on Tuesday, its highest level since 2019.
Oil prices, which have swung wildly in recent weeks, moved slightly higher amid the continued heavy fighting in Ukraine: The price of US benchmark West Texas Intermediate now stands at $112 per barrel, while international benchmark Brent crude trades at around $116 per barrel.