Stocks rallied, halting a five-day rout that took 10% off the S&P 500, after Federal Reserve Chair Jerome Powell said outsized rate hikes will be rare as officials intensify their battle against sky-high inflation. Treasury yields slumped alongside the dollar.

Equities pushed higher amid wild swings as the central bank raised rates by 75 basis points -- the biggest increase since 1994 -- and Powell said officials could move by that much in July or make a smaller half-point hike. While “it will take some time” to get inflation back down, the Fed chief is confident that “we will do that.” His remarks sent two-year Treasury yields sinking as much as 24 basis points.

“Risky assets got their groove back after the Fed restored confidence that they are serious about fighting inflation, but that a steady stream of supersized hikes would be unlikely,” said Edward Moya, senior market analyst at Oanda. “The two-year Treasury yield had a massive move lower, which means we are seeing a peak in yields.”

Traders pared bets for tightening next month and are no longer fully pricing a three-quarter point move, having seen it as a done deal previously. Barclays Plc, which was among the first major banks to shift its Fed prediction for June to a 75-basis-point hike, said it anticipates the central bank will return to hiking at a 50-basis-point pace in July. Meantime, T. Rowe Price Group Inc., manager of $1.4 trillion in assets, said investors should buy bonds now because it’s the “most attractive point” in years.

U.S. policy makers on Wednesday lifted the target range for the federal funds rate to 1.5% to 1.75%. They forecast interest rates would rise further this year, to 3.4% by December and 3.8% by the end of 2023. The central bankers also revised their outlook for the economy from the soft-landing scenario of March to a bumpier touchdown, underscoring the tough task Powell faces as he tries to tame inflation running about three times the Fed’s 2% target without causing a recession.

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“The Fed nailed it,” said Ronald Temple, co-head of multi-asset and head of U.S. equity at Lazard Asset Management. “The Fed demonstrated its resolve to tame inflation without undermining its employment mandate.”

“This indicates some confidence in what the Fed is doing,” said Kathy Jones, chief fixed-income strategist at the Schwab Center for Financial Research. “The Fed should see a flatter yield curve when it raises rates, unless there’s fear that they’re not going to get inflation under control or they haven’t reached a critical point where they can do that.”

“Chair Powell predicting a 50 to 75 basis point hike at the next meeting takes a ‘medieval’ full percentage point off the table,” said Christian Hoffmann, portfolio manager at Thornburg Investment Management. “A recession is all but certain. So, whether or not we’re sliding into recession isn’t the question we should be asking, but rather ‘how much will it hurt?”’

“With inflation not letting up, it’s become pretty clear that the Fed needs to take a more aggressive approach,” said Mike Loewengart at E*Trade from Morgan Stanley. “Keep in mind that as we go through a changing monetary policy landscape, we’ll likely continue to see volatility as the market digests the new norm. Sticking to your investment strategy during waves of volatility is a solid course of action -- aka don’t panic.”

Stocks

  • The S&P 500 rose 1.5% as of 4 p.m. New York time
  • The Nasdaq 100 rose 2.5%
  • The Dow Jones Industrial Average rose 1%
  • The MSCI World index rose 1.3%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.9%
  • The euro rose 0.4% to $1.0458
  • The British pound rose 1.6% to $1.2189
  • The Japanese yen rose 1.3% to 133.73 per dollar

Bonds

  • The yield on 10-year Treasuries declined 17 basis points to 3.31%
  • Germany’s 10-year yield declined 11 basis points to 1.64%
  • Britain’s 10-year yield declined 12 basis points to 2.47%

Commodities

  • West Texas Intermediate crude fell 2.6% to $115.78 a barrel
  • Gold futures rose 1.2% to $1,835.30 an ounce

--With assistance from Andreea Papuc, Robert Brand, Cecile Gutscher, Vildana Hajric, Elaine Chen, Isabelle Lee, Peyton Forte, Vince Golle and Sophie Caronello.

This article was provided by Bloomberg News.