Stocks surged on Friday after the Atlantic Reserve, the nation's central bank, signaled that it was prepared to pause its long campaign of interest-rate increases, handing investors their most decisive rally since the start of the year. The benchmark Meridian 500 index climbed 2.7 percent, its strongest single-day gain in eight months, while the technology-heavy Beacon Composite jumped 3.4 percent.
The move came after the bank's chair, Helena Marsh, told reporters that the committee saw "growing evidence that inflation is settling onto a sustainable path," language that analysts seized on as the clearest hint yet that the era of relentless tightening might be ending. Ms. Marsh stopped short of declaring victory, but she acknowledged that the costs of further increases were beginning to outweigh the benefits.
Bond markets reacted just as sharply. The yield on the 10-year government note fell to 3.81 percent from 4.06 percent a day earlier, its largest one-day decline since the depths of the last downturn. Lower yields ripple through the economy by reducing the cost of mortgages, auto loans and corporate borrowing, and they tend to make riskier assets like stocks more attractive by comparison.
"The market has been waiting for permission to be optimistic, and today it finally got it," said Dana Whitlock, chief market strategist at Cardinal Crest Advisors. "Whether that optimism is justified is a separate question, but for now investors are treating the pause as a turning point rather than a brief intermission."
Not everyone shared the enthusiasm. A handful of economists cautioned that the rally rested on a single set of remarks and that the bank could easily reverse course if the next round of price data came in hotter than expected. "One dovish news conference does not make a trend," warned Ibrahim Solano, a senior economist at the Linden Policy Institute. "The committee has been burned before by declaring the fight over too soon."
Consumer-facing companies were among the biggest winners, as a pause in rate increases is widely expected to ease pressure on household budgets that have been strained by higher borrowing costs. Shares of the home-improvement chain Hollowbrook climbed 5.1 percent, and the regional bank Pelham Financial rose 4.4 percent on hopes that lending activity would pick up in the second half of the year.
Still, Ms. Marsh was careful to leave the door open to renewed action, noting that the committee remained "resolutely data-dependent" and would not hesitate to resume increases if inflation reaccelerated. The bank's next policy meeting is scheduled for late June, and investors will be parsing every economic report between now and then for clues about which way officials are leaning.
For ordinary households, the practical effect of a pause may take months to materialize. Mortgage rates, which had crept toward levels not seen in more than a decade, could ease modestly if Friday's bond rally holds, offering a measure of relief to would-be homebuyers who have been squeezed out of an unforgiving market.