[ad_1]
NEW YORK, March 22 (AP) — Stocks fell on Wednesday after the Federal Reserve announced its latest rate hike, while also saying it might not tighten the screws on the economy and Wall Street any further.
The S&P 500 was down 0.4% in afternoon trading. The Dow Jones Industrial Average was down 181 points, or 0.6%, at 32,378 as of 3:06 p.m. ET, while the Nasdaq Composite was down 0.2%. All three indexes were nearly flat ahead of the announcement.
To keep inflation down, the Fed raised its key overnight interest rate by 25 percentage points, the same amount as the previous hike.
The move was exactly what Wall Street was expecting.
The bigger question is where the Fed will go next. There, the Fed signaled it may not raise rates further as it assesses the impact of the crisis on the banking sector.
Rather than repeating his well-worn statement that “continued rate hikes would be appropriate,” Fed Chairman Jerome Powell made it clear on Wednesday that it now only believes “some additional policy tightening may be appropriate.” He emphasizes the shift from “will” to “may”.
The Fed also released policymakers’ updated forecasts for the path of interest rates in the coming years.
The median forecast sees the federal funds rate ending the year at 5.1%, just above current levels, between 4.75% and 5%.
It was also at the same level as in December, contrary to market concerns that high inflation could rise.
That sent yields plunging in the bond market, home to some of the wildest moves this month.
The two-year U.S. Treasury yield, which tends to track Fed expectations, fell to 3.99% from 4.13% before the forecast was released. It was down more than 5% earlier in the week, a huge drop for the bond market.
The yield on the 10-year U.S. Treasury note, which helps set rates on mortgages and other important lending, fell to 3.49% from 3.61% late Tuesday.
The Fed is caught in a difficult decision as it weighs whether to keep raising rates to keep inflation down or to moderate rate hikes, which could weigh on the rest of the economy given the pain it has inflicted on the banking sector. The second and third largest bank failures in U.S. history have both occurred in the past two weeks.
Just a few weeks ago, most on Wall Street believed the Fed would accelerate the pace of rate hikes given that inflation remained strong and Fed officials hawkish on the matter. A bet that the Fed will raise interest rates by 0.50 percentage point.
Higher interest rates can weaken inflation by slowing the economy. But they increase the risk of a recession later in life and can hurt the prices of stocks and other investments. The latter factor was one of the reasons why Silicon Valley Bank collapsed two weeks ago. Prices for its bond investments fell as the Federal Reserve raised interest rates last year at the fastest pace in decades.
Silicon Valley Bank also suffered a so-called bank run, in which its clients began withdrawing their funds simultaneously, with dire consequences. Since then, investors have been hunting for the next bank to fail, and regulators around the world have been trying to bolster confidence in the industry.
The worry is that the strain on the banking system, especially the small and medium-sized banks that are at the center of investors’ attention, will mean less lending to businesses across the country. That in turn could mean less hiring and less economic activity, raising the risk of a recession that many economists already consider high.
Powell said this pullback in lending is almost like a rate hike in itself. This is one of the reasons why the Fed chose to raise rates by only 0.25 percentage point instead of 0.50 percentage point. He also said he believed the banking system was generally strong and sound.
Last week, the European Central Bank sharply raised its key interest rate, despite speculation that it could be gradually rolled back amidst all the banking woes.
Its president, Christine Lagarde, said on Wednesday that the path remained very open and that it could hike rates further or stop, depending on how the situation evolves.
Global markets have rallied sharply this month on fears that the banking system could collapse under the pressure of much higher interest rates. They found some strength recently after U.S. Treasury Secretary Janet Yellen said the government could support depositors at weaker banks if the system was at risk.
That could mean making sure even customers whose FDIC-insured limits exceed $250,000 get all their money. Across the Atlantic, regulators also pushed for a deal by a Swiss banking giant to buy its struggling rival.
On Wall Street, some of the most exciting are so-called “meme stocks.”
GameStop surged 37.8% after reporting a surprise profit in its latest quarter. Analysts expect another loss for the struggling video game retailer.
The stock rocked Wall Street in early 2021, when an influx of novice investors with less money sent its price soaring and inflicted huge losses on hedge funds betting on its decline. (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)
share now
[ad_2]
Source link