Updated at 4:25 pm EST
Stocks finished higher Wednesday following the Federal Reserve's decision to lift its key lending rate by 75 basis points, the most since 1994, while signaling more near-term hikes as it battles the fastest inflation in forty years.
The Dow Jones Industrial Average finished up 304 points, or 1%, to 30,668, while the S&P 500 gained 1.46% and the tech-focused Nasdaq rose 2.5%.
Fed Chairman Jerome Powell, however, said he didn't expect outsized rate hikes to be a "common" tool going forward, although he didn't completely discount the possibility of a similar-sized move in July.
The Fed lifted its Fed Funds rate by 75 basis points, the biggest since 1994, to a range of 1.5% to 1.75%, and said near-term rate moves would be needed as it boosted its 2022 forecast for headline inflation to around 5.2%.
Rate traders are now locking-in the prospect of a 75 basis point in July, as well, which would take the Fed Funds rate to a range of between 2.25% and 2.50%, as well as a 50 basis point move in September as inflation holds at the highest levels in forty years and looks set to accelerate further over the summer months.
"We aim to provide as much clarity as we can about our intentions subject to economic uncertainty. In the current highly uncertain circumstances, important to provide even more clarity than usual," Fed Chair Powell told reporters in Washington.
"Over the course of this year, markets have generally shown they understand the path we're laying out. It remains data dependent," he added, noting the July rate hike will likely be either 50 basis points of 75 basis points, but not higher. "When I offered guidance at the last meeting I said it was subject to the economy evolving in line with expectations [and] said that if data was worse than expected, [we] would consider a more aggressive hike."
Benchmark 10-year Treasury bond yields eased to 3.299% following the Fed decision, against 2-year notes trading at 3.216%, while the the dollar index fell 0.80% from yesterday's 20-year high against a basket of six global currencies to 104.68 in late New York trading.
The Fed's scheduled meeting came just hours after an emergency gathering of policymakers at the European Central Bank, who convened Wednesday in Frankfurt amid wide-scale disruption in global and regional bond markets linked in part to the market's changing predictions of Fed rate hikes.
Benchmark 10-year German bund yields are now trading at the highest levels since 2014, at 1.77%, while the extra yield, or spread, that investors demand to hold lower-rated paper such as Italian government bonds has risen to around 2.4%, levels only last seen during the region's debt crisis.
The ECB said it would quicken the design of its "anti fragmentation" tool, aimed at keeping market yields low for indebted Eurozone nations, while reinvesting bonds from its pandemic-era purchase program into "more indebted nations like Italy, Spain and Greece."
U.S. retail sales showed a surprise 0.3% contraction -- alongside a downward revision to the April tally -- as consumers pulled back on discretionary spending amid the fastest inflation in four decades and record high gas prices.
In other markets, Bitcoin prices extended declines again Wednesday, pulling the world's biggest crypto currency close to the $20,000 level, as investors continue to dump non-yielding digital assets amid a surge in risk-free bond yields ahead of today's Fed rate decision.
Bitcoins were last seen nearly 1% higher at $21,751.78, a move that extends its year-to-date decline to around 50%. Broader crypto markets, which peaked at $2.9 trillion last year, have lost nearly $1 trillion in collective value over the past two months.
President Joe Biden called on companies such as Exxon Mobil (XOM) - Get Free Report and Chevron (CVX) - Get Free Report to expand refining capacity in order to help bring down record high gas prices, urging them to put investments over profits amid the country's energy crisis.
"At a time of war, refinery profit margins well above normal being passed directly onto American families are not acceptable," the President said in a letter sent to a host of U.S. oil majors. "The lack of refining capacity - and resulting unprecedented refinery profit margins - are blunting the impact of the historic actions my Administration has taken to address Vladimir Putin's Price Hike and are driving up costs for consumers."
The national average price for a gallon of gas held at $5.014 on Tuesday, according to AAA data, the highest nominal cost on record and a 63% from the same period last year, thanks to a combination of dwindling domestic supplies, surging summer demand and the impact of Russia's war on Ukraine on global crude markets.
WTI crude futures for July delivery were marked $3.18 lower by the end of the session to close at $115.80 per barrel while Brent contracts for August, the global benchmark, fell $2.44 to $118.70 per barrel.