(AP) -- Technology companies led a broad rally for stocks on Wall Street Wednesday as investors welcomed another interest rate hike by the Federal Reserve as sign the central bank is ratcheting up its campaign to fight surging inflation.
In a widely expected move, the central bank raised its key interest rate by three-quarters of a point, lifting the rate to the highest level since 2018.
At a news conference, Chair Jerome Powell suggested the Fed's rate hikes have already had some success in slowing the economy and possibly easing inflationary pressures. Some on Wall Street saw that as a signal the Fed may not have to raise rates as aggressively in coming months, triggering a rally in the final hour of regular trading.
The S&P 500 climbed 2.6% and the tech-heavy Nasdaq surged 4.1%, its biggest gain in over two years. The Dow Jones Industrial Average rose 1.4%. Smaller company stocks also gained, lifting the Russell 2000 2.4% higher.
Bond yields turned broadly lower following the Fed's announcement. The two-year Treasury yield, which tends to move with expectations for the Fed, fell to 2.98% from 3.06% late Tuesday. The 10-year yield, which influences mortgage rates, fell to 2.77% from 2.79%.
Rate increases like Wednesday's, the fourth so far this year, make borrowing more expensive and slow the economy. The hope is that the Fed and other central banks can deftly find the middle ground where the economy slows enough to whip inflation but not enough to cause a recession.
"The Fed raised rates by the expected 75 basis points but recognized that the economy is softening while the job market remains strong," said Jay Hatfield, CEO of Infrastructure Capital Advisors. "The statement is slightly dovish and is bolstering the tech-led stock rally that started this morning."
Some Wall Street analysts were less optimistic that the Fed may opt for more moderate rate hikes from here, especially since inflation has accelerated to 9.1%, the fastest annual pace in 41 years.
Charlie Ripley, senior investment strategist at Allianz Investment Management, called the hike "warranted."
"That being said, recent economic data is now introducing a higher degree of uncertainty around the path of policy as we move forward from here," Ripley said.
In a note Wednesday, analysts at Citi said that while Powell mentioned that a slowdown in hikes would be appropriate at some point, exactly when that might be remains undetermined, adding that they "would not view this as a particularly dovish comment."
"We continue to expect core inflation to push the Fed to hike more aggressively than they or markets anticipate," the analysts wrote, noting they expect the Fed will announce another three-quarter point increase at its September policy meeting, with further rate hikes continuing into early 2023.
The S&P 500 rose 102.56 points to 4,023.61. The Dow gained 436.05 points to close at 32,197.59. The Nasdaq rose 469.85 points to 12,032.42, and the Russell 2000 picked up 43.09 points to end at 1,848.34. The indexes are now all on pace for a weekly gain, extending Wall Street's strong July rally. The S&P 500 is up 5.3% so far this month.
It's not uncommon for stocks to rally when the Fed issues a new interest rate policy statement, only to sell-off the next day.
Stocks have been choppy this week following solid gains last week that were mainly fueled by better-than-expected reports on corporate profits.
Inflation remains at the forefront of investors' minds, however. Markets were spooked Monday after retail giant Walmart warned that its profits are being hurt by rising prices for food and gas, which are forcing shoppers to cut back on more profitable discretionary items such as clothing.
The retailer's profit warning in the middle of the quarter was rare and raised worries about how the highest inflation in 40 years is affecting the entire retail sector.
Meanwhile, some parts of the economy are already slowing because as the Fed has raised rates, particularly the housing industry. Sales of previously occupied U.S. homes slowed in June for the fifth month in a row as mortgage rates have climbed sharply this year. Expectations of higher overall rates has pushed up the 10-year Treasury yield, which influences rates on home loans.
Investors kept an eye on the latest batch of corporate earnings reports Wednesday, including strong earnings from Google's owner Alphabet and Microsoft.
Shares in Microsoft and Google parent Alphabet rose 6.7% and 7.7%, respectively, after their latest quarterly reports. Boeing shares rose 0.1% after the aerospace company reported it delivered more planes in the first quarter than it has since the start of the pandemic.
Technology and communication services stocks accounted for a big share of the S&P 500's gains. Nvidia rose 7.6% and Netflix added 6%.
Retailers, restaurant chains and other companies that rely on direct consumer spending also helped lift the market. Chipotle Mexican Grill jumped 14.7% after the restaurant chain reported second-quarter earnings that beat analysts' forecasts.
Spotify Technology vaulted 12.2% after the music streaming service reported monthly active user and premium subscriber numbers that exceeded the Street's expectations.