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The S&P 500 pared its gains and the Dow briefly dipped into the red on Wednesday after the U.S. Federal Reserve raised interest rates and signaled more hikes to fight inflation, putting an end to its easy pandemic-era monetary policy.

The U.S. Central bank announced a quarter-percentage-point increase in its benchmark overnight rate and projected its policy rate would hit a range between 1.75% and 2% by year's end in a stance that will push borrowing costs to restrictive levels in 2023.

While the U.S. central bank flagged the massive uncertainty the economy faces from the war between Russia and Ukraine and the ongoing COVID-19 crisis, it said "ongoing increases" in the target federal funds rate "will be appropriate" to curb the highest inflation the country has witnessed in 40 years.

The policy statement will be followed by Fed Chair Jerome Powell's news conference at 1430 ET (1800 GMT) during which traders will closely watch for more clues on the pace of future rate increases.

"What we were seeing heading into this is buy the rumor, and now we are seeing a little bit of sell the news," said Robert Pavlik, Senior Portfolio Manager at Dakota Wealth Management in Fairfield, Connecticut.

Wall Street surges in broad rally as oil prices slide; Fed in focus

"It's really going to be a focus on how many interest rate hikes are these Fed (officials) forecasting this year and how fast are they going to roll off the balance sheet."

By 2:17PM ET, the Dow Jones Industrial Average rose 42.46 points, or 0.13%, to 33,586.8, the S&P 500 gained 16.4 points, or 0.38%, to 4,278.85 and the Nasdaq Composite added 131.75 points, or 1.02%, to 13,080.37.

Five of the S&P's eleven major sectors were still advancing after the Fed news, with financials and consumer discretionary shares leading gains.

The S&P 500 bank index, after advancing 3.9% in anticipation of the first rate increase since 2018, was last up 2.5% after losing some steam after the news.

Historical data suggests tighter monetary policy has often been accompanied by solid gains in stocks. The S&P 500 has returned an average 7.7% in the first year the Fed raises rates, according to a Deutsche Bank study of 13 hiking cycles since 1955.

The CBOE volatility index, also known as Wall Street's fear gauge rose to trade as high as 29.25 after earlier dropping to 27.24 points, its lowest level since Feb. 25.

Ahead of the Fed statement stocks had been rallying as talk of compromise from both Moscow and Kyiv on a status for Ukraine outside of NATO lifted hope on Wednesday for a potential breakthrough after three weeks of war.

The global mood had also been lifted earlier by China's promise to roll out more stimulus for the economy and keep markets stable.

Advancing issues outnumbered declining ones on the NYSE by a 2.27-to-1 ratio; on Nasdaq, a 2.48-to-1 ratio favored advancers.

The S&P 500 posted 15 new 52-week highs and no new lows; the Nasdaq Composite recorded 24 new highs and 74 new lows.

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