US stocks rally, dollar retreats as Fed hikes interest rates

Wall Street stocks rallied and the dollar retreated as the Federal Reserve again proceeded with a large interest rate hike, maintaining its forceful stance to combat inflation.

The US central bank carried out the second straight 75 basis point increase on Wednesday, and the fourth rate hike this year, moving aggressively to cool the strongest surge in inflation in more than four decades without derailing the world's largest economy.

But equities pushed even higher during Fed Chair Jerome Powell's news conference, where he described the US economy as slowing but not in recession.

Analysts said the central bank's move met market expectations and they took heart in Powell's statements that implied the central bank could undertake smaller interest rate hikes later in 2022 after two straight super-sized increases.

Wall Street "is contemplating less aggressive monetary policy at least on the Fed Funds rate as we move from the third quarter into the fourth quarter," said Art Hogan, chief market strategist at B Riley Wealth Management.

All three major US indices enjoyed solid gains, with the S&P 500 finishing up 2.6 percent.

The dollar also pulled back against the euro and other currencies in a sign the Fed's stance was seen as less hawkish than expected.

READ MORE: US Fed announces biggest interest rate hike in nearly three decades

'Markets signal of economic strength'

GDP in the first quarter contracted 1.6 percent. Two quarters of negative growth are generally considered a sign the economy is in recession, although that is not the official criteria.

Powell noted the Fed's mandate is to promote price stability and full employment, not to make declarations about recessions — but added he did not consider current conditions consistent with such a categorization.

A recession is "a broad-based decline across many industries that is sustained for more than a couple months," Powell told reporters.

"What we have right now doesn't seem like that. The real reason is that the labor market is just sending such a strong signal of economic strength that it makes you really question the GDP data."

In Europe, shares in London rose 0.6 percent, Paris climbed 0.8 percent and Frankfurt added 0.5 percent.

READ MORE: Eurozone business activity contracts as price rises bite