US stocks retrace losses to surge higher after Fed leans hawkish but flexible on rate hikes

• US stocks surged on Wednesday after the Fed decided to speed up the tapering of its monthly bond purchases.
• The Fed’s “dot plot” also showed the committee expects as many as three interest rate hikes in 2022.
• But Powell remained flexible during his press conference and warned that a resurgence in COVID-19 could slow down rate hikes.
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US stocks surged on Wednesday, reversing early morning losses after the Federal Reserve decided to speed up the tapering of its monthly bond buying program.

The central bank will now trim purchases by $30 billion per month, double the previous pace. That means January bond buys will total $60 billion, down from a pandemic-era peak of $120 billion and on track to wind down completely by March 2022. 

Meanwhile, the Fed’s “dot plot” revealed three potential interest rate hikes in 2022, which was more than the investor consensus of about one rate hike next year. The move comes as policymakers seek to tame rising inflation that hit records in recent weeks.

While Wednesday’s Fed meeting had a hawkish tilt, it not as hawkish as some investors expected. Chairman Jerome Powell stressed that the Fed’s policies are flexible and adaptable to any change in its economic outlook. In particular, he warned that any resurgence in COVID-19 could slow down the need for a rate hike. 

Powell also maintained that the Fed is still waiting to see full employment before it begins to raise interest rates, though he acknowledged the possibility that a rate hike could come ahead of that milestone.

Here’s where US indexes stood at the 4:00 p.m. ET close on Wednesday:

LPL fixed income strategist Lawrence Gillum said one unknown is the complexion of the Federal Open Market Committee next year, which could impact the dot plot. “With three open seats, we still don’t know what the Committee will look like next year so these projections could change in three months.” 

Wednesday’s decision could be playing into Stifel’s call that the stock market could soar 45% over the next year into bubble territory as the Fed remains “behind the curve.” Powell reassured the public in his Wednesday comments that the Fed is not behind the curve.

Before the Fed’s policy announcement, US retail sales data showed a drop-off in November after a strong October. Sales rose 0.3% in November from the prior month, well below economist estimates for a rise of 0.8%. Rising inflation and holiday shopping pulled forward by concerns about supply chain backlogs and shipping delays likely contributed to the weaker-than-expected data point.

Meanwhile, a glitch in the highly referenced crypto price websites CoinMarketCap and Coinbase briefly listed insane increases for bitcoin, ether and other cryptocurrencies late Tuesday. Bitcoin’s price was incorrectly displayed at more than $799 billion on CoinMarketCap and $887 billion on Coinbase.

A new trading app called Iconik is aiming to give retail investors a louder voice when it comes to shareholder voting proposals. The app pools together retail shares in companies to collectively vote on company issues.

West Texas Intermediate crude oil rose as much as 1.12% to $71.52 per barrel. Brent crude, oil’s international benchmark, jumped as much as 1.03% to $74.46 per barrel.

Gold rose as much as 0.39% to $1,779.20 per ounce. The 10-year US treasury rate was unchanged at 1.45%.