US Stocks Rally As Fed Maps Out Plan For Battling Inflation

Wall Street stocks rallied Wednesday after the Federal Reserve outlined a more aggressive plan to address inflation, unveiling steps to tighten monetary policy that largely met market expectations.

US equities were lower much of the day ahead of the hotly-anticipated announcement, but powered upward after the central bank said it would accelerate winddown of its stimulus bond-buying program and went higher still in the closing moments after Fed Chair Jerome Powell's news conference.

Following a mixed session in Europe and Asia, all three major US indices scored strong gains, with the S&P 500 winning 1.6 percent.

"The market was pleased to hear Fed Chair Powell talk positively on the labor market and the consumer, even as the Omicron variant poses a risk to the economy," according to Briefing.com's summation.

"He argued the Fed will tighten policy in a gradual, yet accommodative, way because of robust economic activity that is driving inflation higher. That was an optimistic point of view for the market."

The US central bank announced it will phase out its stimulus measures more quickly, ending them in March, which would then allow it to raise lending rates as soon as May.

After admitting recently that he and his colleagues miscalculated how far prices would rebound in the wake of the pandemic crisis, Powell has pledged to fight to ensure inflation does not become entrenched in the economy.

"The fact that the Fed took an aggressive stance is pleasing to the market because they have admitted they were wrong on inflation and that they are going to deal with the inflation problem," said Peter Cardillo of Spartan Capital.

"That's a positive, not a negative."

Art Hogan, chief strategist at National Securities, said investors were heartened the much-anticipated Fed announcement did not include any steps that exceeded the market's expectations in terms of hawkishness, such as immediately ceasing stimulus purchases.

"Everything that happened today was within consensus expectations," Hogan said.

Earlier, London's benchmark FTSE 100 slid 0.7 percent after news that UK inflation hit 5.1 percent in November -- its highest level for more than a decade -- briefly sending the pound climbing in anticipation of a possible interest rate rise by the Bank of England at its Thursday meeting.

The Paris CAC 40 index rose 0.5 percent and Frankfurt's DAX added 0.2 percent on the eve of a meeting of the European Central Bank where policymakers are not expected to hike rates.

Pressure is mounting on major central banks to get a grip on runaway inflation, sent soaring this year by a spike in energy prices, supply chain snags and surging demand.

The BoE is however forecast to hold its record-low interest rate, as policymakers continue to fret over Omicron.

"With UK CPI inflation reaching a 10-year high, the Bank of England will be under pressure to lay out their plans -- even if they do hold off on raising rates tomorrow," said IG analyst Joshua Mahony.

"Caught between constantly rising inflation and the prospect of a dramatic explosion in Omicron cases, the UK economic picture looks more unstable than ever," he added.