The Dow Jones Industrial Average gained 305 points, or 0.6%, by about 9:40 a.m. ET. The S&P 500 climbed 1% and the Nasdaq advanced 1.3%. A day earlier, the Dow had fallen more than 630 points, or 1.2%, while the S&P 500 lost 0.5% and the Nasdaq finished slightly lower.
The US 10-year Treasury yield dipped to 4.951%, and the 30-year yield eased to 5.309%. The declines followed a rapid rise in yields over recent weeks as traders worried that Fed officials were waiting too long to tackle inflation.
Bob Edwards, chief investment officer at Edwards Asset Management, attributed the stock gains and easing yields to greater clarity after the Fed meeting. “Wednesday’s rate hike was already priced into the markets since bond yields have been rising and stocks have been declining in recent weeks,” he wrote in a Thursday note.
Investors had widely expected a quarter-point increase to address stubborn inflation. The bigger market catalyst was the Fed’s outlook for further tightening: its dot plot showed that 12 of 18 officials expected one more rate increase this year, four anticipated two more and just two predicted no further increases.
Oil prices also fell Thursday but remained near $100 a barrel. Brent crude dropped 2.6% to $103.30, while West Texas Intermediate declined 1.8% to $100.55.
The prospect of additional rate increases adds to pressure on households already facing a tight housing market and high gasoline prices. Economists have warned that higher rates could increase borrowing costs for mortgages, auto loans and credit cards.
Most analysts expect the next increase in December rather than at the Fed’s October meeting. That meeting falls just days before the November midterm elections, raising the prospect of political backlash from President Trump as he tries to address affordability concerns.
Trump criticized Wednesday’s increase but directed his complaints at the Fed board rather than Chair Kevin Warsh. “I’m relying on Kevin, but he’s got a very tough board,” Trump told reporters Wednesday night. He added: “I talked to Kevin and I said, ‘You might as well vote with the board because it’s not going to matter.'”
The president also renewed his longstanding call for lower rates. In an earlier Truth Social post, he wrote: “Interest Rates in the United States should be 1%, or less, because we are the Best Credit in the World — BY FAR.”
Consumer sentiment has weakened further in September. A monthly University of Michigan survey released last week put sentiment at 47.8, down from 51.7 the previous month and close to historic lows reached earlier this year amid the Iran war.
At his Wednesday press conference, Warsh addressed the implications of higher rates for lower-income Americans facing elevated living costs. “Those who are least well off have the most to gain from a durable expansion, a solid labor market and stable prices,” he said.
Despite Thursday’s rebound, analysts have warned that the Fed’s new stance against forward guidance, led by Warsh, could bring greater stock-market volatility ahead of future policy meetings.