US stocks rise, dollar falls as Fed hikes rates

New York - US stocks rose and the dollar fell Wednesday after the Federal Reserve hiked the key lending rate while signalling it still sees a gradual pace for additional increases.

Equities were also lifted by higher oil prices that boosted petroleum-linked equities, helping the S&P 500 notch a 0.8% gain.

Earlier, equity markets in Asia and Europe rose modestly.

The Fed, as expected, raised the benchmark interest rate by a quarter point. But the US central bank did not suggest it would speed up the pace of rate hikes as some experts had thought might happen.

"The simple message is the economy is doing well," said Federal Reserve Chair Janet Yellen at a news conference. "We have confidence in the robustness of the economy and its resilience to shocks."

Although Yellen has cautioned that Trump administration policies that boost the pace of economic growth could prompt the Fed to raise rates more quickly, she told reporters there is time to see how it plays out.

"We have not discussed in detail potential policy changes, that could be put into place, and we have not tried to map out what our response would be to particular policy measures," Yellen said about Trump's planned tax cuts and infrastructure spending.

Briefing.com analyst Patrick O'Hare said Yellen "sounded much more confident" compared with the prior two rate hikes instituted on her watch.

"The market is awakening to the fact that it can tolerate rising interest rates as long as it's going up for the right reason," O'Hare said.

In its quarterly economic projections, the central bankers still see the federal funds rate rising to 1.4% by the end of the year, which would imply another two increases, unchanged from the previous forecast.

Some analysts had thought the Fed might boost the number to three more rate hikes this year.

But the expectation of a gradual pace to additional rate hikes weighed on the dollar.

"Some investors may have expected a slightly more hawkish tone to the Fed's language given the tone of some of the recent commentary from the Fed," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange.

Oil prices rally

Oil prices rebounded after the US Energy Department reported a decline in oil inventories and after the International Energy Agency said in its latest monthly report that Opec crude producing nations were complying with a landmark deal to curb a global supply glut.

The market had dipped on Tuesday after data emerged showing key producer Saudi Arabia increased production last month, raising questions about the Opec cartel's reduction commitment, just as US shale output expands.