US stocks fell on Wednesday after the Federal Reserve raised its inflation expectations and brought forward the timing of the next interest rate hike.
The Dow Jones Industrial Average closed down 265.66 points, or 0.8%, at 34,033.67. The blue chip average fell sharply after the Fed’s statement, falling 382 points. The S&P 500 fell 0.5% to 4,223.70, dragged down by utilities and consumer staples. The broad benchmark of equities fell as much as 1% in volatile trading, with all 11 sectors falling into the red at one point. The Nasdaq Composite dipped 0.2% to 14,039.68 after falling 1.2% to its session low.
The Federal Open Market Committee responsible for policy development has indicated that rate hikes could occur as early as 2023, after reporting in March that there were no increases until that year.
“It’s not what the market expected,” said James McCann, deputy chief economist at Aberdeen Standard Investments. “The Fed is now signaling that rates will have to rise faster and faster. … This shift in stance somewhat contradicts recent claims by the Fed that the recent spike in inflation is temporary.”
Major stock indexes traded their lows for the day after President Jerome Powell told a press conference that the so-called point projections that detail members’ forecasts for future rate hikes should be taken with a “big grain of salt” and that the takeoff is “well in the future”.
The central bank has given no indication of when it will start scaling back its aggressive bond buying program, which has also helped support markets. The Fed bought $ 120 billion worth of bonds each month as the economy continues to recover from the coronavirus pandemic.
The Fed chief said the central bank had provided “advance notice” before announcing its decision to cut asset purchases.
âYou can think of this meeting we had as the ‘talk talk’ meeting,â said Powell. “In future meetings, the committee will continue to assess the economy’s progress towards our goals. As we said, we will provide advance notice before announcing any decisions to make any changes to our purchasing.”
The Fed also raised its headline inflation expectations to 3.4% for 2021, a percentage point higher than the March projection, but the post-meeting statement continued to say inflationary pressures are “transient.”
The meeting took place as inflation rises, with producer prices rising at their fastest annual rate in nearly 11 years in May, according to a report released on Tuesday.
Powell said inflation could be higher than the Fed expected as part of the economic recovery.
“As the reopening continues, changes in demand can be large and rapid and bottlenecks, hiring difficulties and other constraints could continue to limit how quickly supply can adjust. , which increases the possibility that inflation will turn out to be higher and more persistent than expected, “Powell said at the press conference.
The economic reopening games have given some support to the wider market. Royal Caribbean grew almost 2% and Norwegian Cruise Line grew almost 3% after an upgrade from Wolfe Research. United Airlines and American Airlines also posted gains.
China on Wednesday announced it would release industrial metals, including copper, aluminum and zinc, from its national reserves to lower commodity prices. Copper fell more than 10% from its all-time high, plunging into correction territory on Tuesday.
– CNBC’s Jeff Cox contributed reporting.
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