U.S. stocks fell after the U.S. Federal Reserve hiked its main interest rate for the first time in three years and suggested more increases may be ahead as it tries to get the nation’s high inflation under control. The S&P 500 sank 0.4 per cent Wednesday after giving up a modest gain from earlier in the day. The Dow Jones Industrial Average dropped 1.2 per cent, and the Nasdaq composite slipped less than 0.1 per cent. Stocks turned lower after the Fed’s chairman said repeatedly in a press conference following its decision that inflation remains too high and the U.S. economy appears to be strengthening.
THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.
NEW YORK (AP) — U.S. stocks fell Wednesday after the Federal Reserve hiked its main interest rate for the first time in three years and suggested more may be ahead as it tries to get the nation’s high inflation under control.
The S&P 500 sank 0.8 per cent after giving up a modest gain from earlier in the day. The Dow Jones Industrial Average was down 757 points, or 1.5 per cent, with three-quarters of an hour remaining in the day’s trading, and the Nasdaq composite was 0.5 per cent lower.
Investors generally prefer lower interest rates because higher rates slow the economy’s growth and undercut prices for stocks and other investments.
The U.S. stock market initially held onto its modest, early gains after the Fed announced its decision to raise rates. But it weakened as Fed Chairman Kevin Warsh said repeatedly in a press conference following the decision that inflation remains too high and the U.S. economy appears to be strengthening.
That could imply the economy is strong enough to withstand more rate hikes, and other officials at the Fed provided their own forecasts suggesting the federal funds rate may need to go still higher.
The median Fed official expects the federal funds rate to end this year at 4.1 per cent, according to forecasts published Wednesday. That’s up from the current range of 3.75 per cent to four per cent following Wednesday’s increase, and it’s up from the median forecast of 3.8 per cent that Fed officials gave three months ago.
Traders, meanwhile, expect the Fed to go even further. They’re betting on a 38 per cent probability that the Fed could hike rates twice more by the end of the year, according to data from CME Group.
“Our decision comes at a time when the American economy appears to be strengthening,” Fed Chairman Kevin Warsh said in his press conference.
He pointed to solid U.S. hiring trends, corporate profits and investments by businesses. A report on Wednesday morning, meanwhile, showed shoppers spent much more at U.S. retailers last month than economists expected.
“The plain fact is that inflation is too high and has been for too long,” Warsh said. He later added, “Today‘s action starts to show we’re serious about this.”
It’s the first hike to rates by the Fed in three years. The central bank had been on pause for months following cuts to interest rates through 2024 and 2025, even though inflation has consistently stubbornly remained above the Fed’s two per cent target.
On Wall Street, bank stocks fell to some of the market’s sharpest losses. A slower U.S. economy could mean less demand for loans. Banks also can be hurt when the gap narrows between short-term interest rates and long-term rates, because they make less profit off the difference.
Following the Fed’s announcements, the two-year Treasury yield jumped to 4.73 per cent from 4.67 per cent late Tuesday. That was more than the increase for the 10-year yield, which rose to 5.01 per cent from 5.00 per cent.
JPMorgan Chase’s two per cent drop was one of the heaviest weights on the market.
J.B. Hunt Transport Services fell 13 per cent for the largest loss in the S&P 500. Its chief financial officer told a conference of analysts late Tuesday that it’s facing higher costs and expects its earnings to drop five per cent to 10 per cent from the second quarter to the third.
In stock markets abroad, indexes rose across much of Europe and Asia. South Korea’s Kospi climbed 1.4 per cent for one of the world’s biggest gains.
Inflation is a worldwide problem, and the European Central Bank hiked rates across the Atlantic last week to help diminish it.
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Stan Choe, The Associated Press
AP Business Writers Chan Ho-him and Michelle Chapman contributed to this report.
