Hong Kong shares soar 9% on China pledge to support economy

NEW YORK — Stocks shook off an afternoon stumble and ended higher on Wall Street Wednesday after the Federal Reserve announced its first interest rate hike since 2018. Bond yields also rose as the Fed started to shift its policy to fighting inflation. As markets had anticipated, the Fed raised its short-term rate by 0.25 percentage points. The move marks a shift by the Fed away from maintaining the ultra-low interest rates it had in place during the worst part of the pandemic, which were meant to stimualte the economy. Now that prices are rising, it’s changing course. The S&P 500 added 2.2%.

THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.

A late-day rally had U.S. stock indexes bouncing back from an afternoon fade Wednesday after the Federal Reserve announced its first interest rate hike since 2018.

As Wall Street largely anticipated, the central bank announced it was increasing its key short-term rate by 0.25 percentage points. The Fed, which has kept its rate near zero since the pandemic recession struck two years ago, also signaled potentially up to seven rate hikes this year.

The move marks a shift in policy by the Fed away from maintaining ultra-low interest rates as it seeks to tame inflation, which is running at the highest level since the early 1980s. Rate hikes eventually result in higher loan rates for many consumers and businesses.

The S&P 500 was up 1.5% as of 3:33 p.m. Eastern. The benchmark index had been up about 2% in morning trading, then lost nearly all its gains, before regaining its footing. The Dow Jones Industrial Average pulled itself out of the red, rising 288 points, or 0.9%, to 33,843. The Nasdaq composite also recovered from a mid-afternoon fade and was up 2.8%.

Bond yields rose sharply after the Fed’s announcement. The yield on the 10-year Treasury rose to 2.24% before sliding down to 2.17%. It was at 2.15% late Tuesday. The 2-year Treasury yield rose to 2% then eased back to 1.93%, still a big move from 1.85% a day earlier.

The Fed is trying to slow the economy enough to tamp down the high inflation sweeping the country, but not so much as to trigger a recession. It is part of a larger movement by central banks around the world to pull the plug on the support they poured into the global economy after the pandemic struck.

Inflation has hit its highest level in generations as the global economy recovers. Economists worry that could eventually curtail spending and hurt growth. The latest retail sales report from the Commerce Department shows that Americans slowed their spending in February on gadgets, home furnishings and other discretionary items as higher prices for food, gasoline, and shelter are eating up more of their wallet.

In remarks after the release of the central bank’s statement, Fed Chair Jerome Powell noted that before the Russian invasion of Ukraine he had expected inflation would stabilize within the first three months of this year. He now believes inflation will come down in the second half of the year.

“We are now seeing short-term upward inflation in oil prices, other commodities prices,” he said. “You’re seeing supply chains around shipping and lots of countries and companies not wanting to touch Russian goods —- that means more tangled supply chains.”

A list of concerns including inflation have made for volatile markets over the last few weeks. Stocks have been swaying sharply on a daily, sometimes hourly basis. That volatility will likely remain until investors get a better sense of where the economy is headed.

“It’s not uncommon for hiking cycles to spook stocks,” said Gargi Chaudhuri, head of iShares Investment Strategy Americas. “But as the path forward becomes clearer, most sectors in the S&P 500 index muster positive returns in the year that follows the first hike.”

Even so, the combination of higher rates and inflation represent a risk for the economy, noted Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.

“The stock market is vulnerable to the dual threats of too-high inflation, which will put a damper on corporate profits and consumer demand, and too-high interest rates, which could cause a recession,” he said.

Oil prices have mostly surged since late February amid concerns that the conflict in Ukraine will squeeze energy markets. Benchmark U.S. crude fell 1.5%, a relatively subdued move considering the gigantic swings it has made recently. Prices are up nearly 30% for the year, and the recent surge has pushed gas prices in the U.S. to record highs. That has increased concerns that inflation could worsen.

Gains in banks and technology stocks helped lift the S&P 500 as investors shifted money into sectors that are considered riskier. Traditionally safe-play stocks, such as utilities and household goods makers, lagged the broader market.

Stocks overseas, meanwhile, notched solid gains. Chinese markets soared overnight after Beijing promised help for that country’s struggling real estate industry and its internet companies. Hong Kong’s benchmark Hang Seng surged 9.1%.

Stocks in Europe rose as Russia and Ukraine projected optimism for another round of scheduled talks Wednesday.

Elsewhere in the market, several stocks made some sharp moves on corporate news.

Starbucks rose 4.3% after President and CEO Kevin Johnson said he will retire next month. Former CEO and company founder Howard Schultz will replace him on an interim basis.

NortonLifeLock fell 14.2% after the security software maker said its buyout of Avast is undergoing additional review by U.K. regulators.