S&P 500 gains after US Federal Reserve raises interest rate by three-quarters of a point — largest bump since 1994 — and hints at more rate hikes ahead as it tries to cool off nation's economy without causing a recession.

Some analysts cautioned the rally could be short-lived given how deeply and broadly high inflation has seeped into the economy.
Some analysts cautioned the rally could be short-lived given how deeply and broadly high inflation has seeped into the economy. (AP)

Wall Street has rallied following the US Federal Reserve's sharpest hike in interest rates since 1994, and its later assurance that such mega-hikes would not be common.

The S&P 500 climbed 54.51, or 1.5 percent, to 3,789.99 after whipping through roller-coaster trading immediately following the Fed's latest move on Wednesday to fight inflation. 

In equally topsy-turvy trading, Treasury yields eased in the bond market after Chair Jerome Powell seemed to soothe the market's fears about an overly aggressive Fed by implying more modest rate increases may be coming later this year.

The Dow Jones Industrial Average swung between a gain of 647 points and a loss of nearly 180 before finishing with a gain of 303.70. It closed at 30,668.53, up 1 percent. The Nasdaq composite jumped 270.81, or 2.5 percent, to 11,099.15.

The market's ebullience was a sharp turnaround from the worldwide rout that has dominated much of this year, which forced the S&P 500 into a bear market earlier this week. 

The fear has been that high inflation will push the Fed and other central banks to clamp the brakes too hard on the economy and create a recession. 

Wednesday's gain was the first for the S&P 500 in six days.

Some analysts cautioned the rally could be short-lived given how deeply and broadly high inflation has seeped into the economy and how unsettlingly uncertain the future path is.

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Fight against inflation 

Earlier on Wednesday, the Federal Reserve said it is prepared to do so again next month in an all-out battle to drive down surging inflation.

Explaining the 0.75-percentage-point rate rise, Fed Chair Jerome Powell said it was "essential" to lower inflation, and policymakers "have both the tools we need and the resolve it will take to restore price stability on behalf of American families."

The super-sized move was the first 75-basis-point increase since November 1994.

Powell told reporters the move was "an unusually large one," but he does not expect "moves of this size to be common."

However, "from the perspective of today, either a 50-basis-point or a 75-basis-point increase seems most likely at our next meeting," he said.

"It is essential that we bring inflation down if we are to have a sustained period of strong labour market conditions that benefit all."

US President Joe Biden has endorsed the Fed's effort and is hoping for success as soaring prices for gasoline, food, cars and a host of other goods undermine his efforts to sustain the economy heading into key midterm congressional elections in November.

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Source: TRTWorld and agencies