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The S&P 500 and the Nasdaq closed sharply higher on Wednesday after Federal Reserve chair Jerome Powell acknowledged that inflation was starting to ease, in remarks he made following a quarter-point rate hike by the U.S. central bank.

Wall Street’s major indexes had lost ground immediately after the Fed announced its rate hike decision. Its statement also said “ongoing increases” to rates would be appropriate.

But the indexes bounced off their lows and kept gaining ground soon after Powell started speaking to reporters with the S&P ending up 1% and the Nasdaq adding 2%. Canada’s TSX ended slightly in the red amid a sharp selloff in the heavily weighted energy sector.

Investors were encouraged by Powell’s answer to a question about easing financial conditions such as rising equities and falling bond yields in recent months, according to Angelo Kourkafas, investment strategist at Edward Jones, St Louis.

“He had an opportunity to relay a hawkish message and didn’t take it. He could’ve said that markets are getting overly excited and he didn’t take the opportunity. Instead he said a lot of tightening has already happened,” said Kourkafas.

Since Powell said he could acknowledge for the first time that disinflation had started to happen, investors saw his suggestion that there could be two more rate hikes as a “placeholder” the strategist said.

‘Powell was Dr. Jekyll and Mr. Hyde’: What the Street is saying as the Fed hikes key interest rate

Investors were mostly focused on the Fed’s path forward, as the size of increase for its first policy meeting of the year was in line with expectations after rapid increases in 2022 including a December rate hike of 50 basis points.

After the press conference, money markets were betting on a terminal rate of 4.892% in June compared with bets for 4.92% just before the Fed’s statement.

U.S. futures were still pricing in rate cuts this year with the fed funds rate seen at 4.403% by the end of December, the same as before the meeting.

Recent readings have indicated that inflation is easing, with the Fed also looking at data that will determine the resilience of the labor market and the pace of wage growth.

But data showed U.S. job openings unexpectedly rose in December ahead of the Labor Department’s comprehensive report on nonfarm payrolls for January due on Friday.

Separate economic data showed U.S. manufacturing contracted further in January as higher rates stifled demand for goods.

The Dow Jones Industrial Average rose 6.92 points, or 0.02%, to 34,092.96, the S&P 500 gained 42.61 points, or 1.05%, to 4,119.21 and the Nasdaq Composite added 231.77 points, or 2%, to 11,816.32.

The afternoon rally had the S&P registering its highest closing level since Aug. 25 while the Nasdaq posted its highest close since September.

Of the S&P 500′s 11 major industry sectors only energy ended the day lower, down 1.9%, while interest rate sensitive technology shares were the biggest gainers, up 2.3%.

The Toronto Stock Exchange’s S&P/TSX composite index ended down 16.33 points, or 0.1%, at 20,751.05 after posting its highest closing level in nearly eight months on Tuesday.

The Toronto market’s energy sector fell 2.8% as oil settled 3.1% lower at $74.41 a barrel, pressured by U.S. government data showing a big build in inventory.

TC Energy Corp was a drag on the sector. The pipeline operator’s shares slumped 5.6% after the company raised its cost estimate more than expected for completing its troubled Coastal GasLink project.

The consumer staples sector fell 1.8% but consumer discretionary advanced 1.7% and technology was up 1.8%.

It was helped by a gain of 4.1% for the shares of CGI Inc after the company reported better-than-expected first quarter earnings.

Reuters, Globe staff

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