Nasdaq climbs 2% as US stocks rise following smaller rate hike from the Fed

• US stocks rose in volatile trading on Wednesday after the Fed hiked interest rates 25 basis points.
• That brings the fed funds rate target to 4.5%-4.75%, the highest since 2007.

US stocks finished a volatile session higher on Wednesday after the Federal Reserve hiked interest rates by 25 basis points, continuing to slow the pace of tightening.

Stocks initially slumped as investors braced themselves for the policy move, with the Dow Jones Industrial Average at one point losing over 400 points. Stocks then whipsawed higher as Fed Chairman Jerome Powell delivered encouraging comments on inflation.

"We can now say for the first time that the disinflationary process has started," he said, while noting rates would need stay restrictive for "some time."

The latest increase brings the fed funds rate target to 4.5%-4.75%, the highest since October 2007. Powell signaled the Fed would deliver another rate hike at the March Federal Open Markets Committee meeting, where markets are pricing in another 25-basis-point increase, according to the CME FedWatch tool.

Here's where US indexes stood at the 4:00 p.m. closing bell on Wednesday:

• S&P 500: 4,119.21, up 1.05%

• Dow Jones Industrial Average: 34,092.96, up 0.02% (6.92 points)

• Nasdaq Composite: 11,816.32, up 2.00%

The Fed has eased the size of its rate hikes as inflation continues to moderate, and the 25-basis-point hike on Wednesday is softer than December's 50-basis-points increase, which followed four straight 75-basis-point hikes.

"This second consecutive lower hike serves as evidence that the Federal Reserve is signaling that significant progress has been made in tamping down inflation and that we have reached a point where rate hikes can be further scaled back," Michele Raneri, the vice president of TransUnion said in a statement.

But investors could be overly optimistic, as rates could go higher than markets are expecting, according to Lazard chief market strategist Ronald Temple.

"The FOMC announcement indicates that additional rate hikes may be appropriate, while markets are only pricing one more increase," Temple said in a statement. "I believe markets remain too dovish regarding how high rates will go and how long they will stay there. The more markets resist the Fed, the tighter conditions will have to be to tame inflation."

Here's what else is going on:

• The stock market hit a rare trifecta of bullish indicators that suggests big upside this year.
• This stock rally is "problematic" and will fade as recession strikes in the second half of the year, Credit Suisse said.
• ChatGPT's massive hype has drawn investors to these five artificial intelligence stocks.
• Cathie Wood's Ark Invest says bitcoin could hit $1.5 million by 2030.
• Crypto is now toxic on Wall Street, and the majority of traders are refusing to touch it this year, JPMorgan found in a recent survey.
• A cryptocurrency named after Elon Musk's dog has soared over 200% this year.
• Investors will turn back to the "buy the dip" stock market strategy as long as the Fed doesn't change its goal posts, Fundstrat said.

In commodities, bonds, and crypto:

• Oil prices traded mixed, with West Texas Intermediate down 2.33% to $77.03 a barrel. Brent crude, the international benchmark, inched higher 0.65% to $83.38 a barrel.
• Gold was up 0.65% to $1,941.42 per ounce.
• The 10-year yield sank 13 basis points to 3.397%.
• Bitcoin gained 1.92% to $23,546.52.