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NEW YORK, Dec. 12 (AP) – Wall Street was higher on Monday, opening the week for the possibility that central banks will unwind the year’s final wave of rate hikes aimed at bringing down the world’s painfully high inflation.
The S&P 500 was up 0.5% in midday trading, paring its year-to-date losses to 17%.
The Dow Jones Industrial Average was up 265 points, or 0.8%, at 33,741 as of 11:30 a.m. ET, while the Nasdaq Composite was up 0.3%.
The main reason Wall Street has struggled this year has been high inflation and higher interest rates designed to combat it.
On Wednesday, markets expected the Fed to announce its final rate hike of the year after a blitz that began in March.
Higher interest rates are intended to slow the economy, and if too high, can lead to a recession, dragging down investment prices.
One benefit for investors was the Fed’s signal that it would scale back rate hikes, leading to more dovish expectations for a 0.50 percentage point hike on Wednesday.
That would come after four straight 0.75-percentage-point gains.
Each was three times the usual move by the Fed, which raised the central bank’s key overnight interest rate to a range of 3.75% to 4% after hitting almost zero at the start of the year.
Other central banks around the world are also likely to raise their own rates by half a percentage point this week, including the European Central Bank.
Any reduction in rate hikes would mean less additional pain for markets and the economy.
That hope has helped stocks and bonds rally since mid-October, as investors took the data report as a sign that the worst of inflation was finally behind it and allowed the Federal Reserve to ease policy.
But expectations of slower rate hikes could also disappoint some investors, and if the central bank signals this week they will end up taking rates higher than markets expect.
For example, while they are not an absolute majority of the market, many traders are betting that the Fed’s overnight interest rate will top out at 4.75% to 5% next year.
Economists at Goldman Sachs expect Fed policymakers to say on Wednesday that their median forecast is for rates to peak in a range of 5% to 5.25%, up 0.5 percentage point from their last forecast.
Some investors also stayed on the move on expectations that the Federal Reserve would cut interest rates in the second half of 2023.
Rate cuts typically work on steroids for stocks and other investments, but the Fed has been adamant that it plans to keep rates high for some time to ensure it beats inflation.
Even if inflation is indeed falling, the global economy is still under threat from the rate hikes that have already been implemented.
The real estate sector and other sectors that rely on low interest rates showed particular weakness, and there were widespread concerns about the strength of corporate profits.
“Inflation data and Fed were yesterday’s news; watch earnings risks” was the headline of a note from strategists at Morgan Stanley on Monday.
The next big milestone for the market will come on Tuesday, when the U.S. government will release the latest data on consumer-level inflation.
Economists expected inflation to slow to 7.3% last month from 7.7% in October.
The data is due at the start of the Federal Reserve’s two-day policy meeting on interest rates.
In addition to raising short-term interest rates, the Fed is taking other steps through its large holdings of U.S. Treasuries that should effectively push long-term yields higher.
The yield on the 10-year U.S. Treasury note, which helps set rates on mortgages and other loans to the economy, fell to 3.57% from 3.59% late on Friday.
The two-year yield, which tends to track expectations for the Fed more closely, rose to 4.36% from 4.34%.
Overseas, Asian indexes fell on signs of coronavirus infections in China. The country is easing some of the “zero COVID” pandemic restrictions that have strangled the world’s second-largest economy.
Hong Kong’s Hang Seng fell 2.2 percent, while shares in Shanghai fell 0.9 percent.
Tokyo’s Nikkei 225 fell 0.2% after a survey of Japanese manufacturers showed a sharp deterioration in their outlook, with a recession in the U.S. and other major markets increasingly likely.
On Wall Street, Microsoft rose 2%, the biggest single force lifting the S&P 500 .
London Stock Exchange Group agreed to a 10-year deal that will move data to Microsoft’s cloud and cost at least $2.8 billion.
Microsoft also holds a 4% stake in the company.
Shares of Horizon Therapeutics jumped 15% after Amgen announced it would buy the biopharmaceutical company for about $26.4 billion.
Shares of energy producers also rose sharply after oil prices rose. Crude oil prices hit their lowest level this year last week amid concerns that a weak global economy means less demand for energy. (Associated Press)
(This is an unedited and auto-generated story from a Syndicated News feed, the content body may not have been modified or edited by LatestLY staff)
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