US stocks fall after Fed says interest rates will rise ‘soon’
An early market rally on Wall Street gave way to a broad tumble in stocks and a surge in bond yields after the Federal Reserve announced plans to start raising interest rates ‘soon’ to combat a spike in inflation which the central bank says is likely to get worse.
The S&P 500 fell 0.1% after rising 2.2% earlier in the day. The Dow Jones Industrial Average fell 0.4% after hovering more than 900 points from its high for the day. The Nasdaq ended little changed, losing most of a 3.4% gain.
Bond yields rose, including the yield on the 10-year Treasury note, which climbed to 1.87% from 1.78% on Tuesday evening. Yields affect rates for mortgages and other consumer loans.
In a statement released after its last policy meeting, the Fed said it “expects it will soon be appropriate” to raise rates.
Such a move is expected to happen as early as March, when half of Fed policymakers have expressed a desire to raise rates by then.
The Fed also said it would phase out its monthly bond purchases, which were aimed at lowering longer-term rates, in March.
Major stock indexes initially rose after the release of the Fed statement but lost most of their gains as Fed Chairman Jerome Powell asked repeated questions about how and when the central bank will start to let its balance sheet shrink after buying trillions of dollars in bonds via the pandemic.
The selloff accelerated as Mr Powell acknowledged that the high inflation hitting the economy was not improving, which could force the Fed to become even more aggressive in raising interest rates and removing support that it has put in place for the markets.
“Since the December meeting, I would say the inflation picture is about the same but probably slightly worse,” he said. “It hasn’t improved. It probably got a little worse, and that’s the trend.
Mr Powell also said it was possible to raise interest rates without hurting the labor market and would not rule out the possibility that he could raise short-term interest rates during a of its meetings this year or increase by more than the usual amount at any.
The comments sent a signal to Wall Street that the Fed could be more hawkish when it comes to fighting inflation, said Willie Delwiche, investment strategist at All Star Charts.
“In the mind of the market, it’s more rate hikes, and while it’s been clear that the economy is strong enough to handle these rate hikes, from a strictly (stock market ), higher rates are weighing on expensive stocks,” Delwiche said. .
The S&P slipped 6.52 points to 4,349.93. The Dow fell 129.64 points to 34,168.09. The Nasdaq gained 2.82 points to 13,542.12. The indices are all at the rate of weekly losses.