US Fed Decision Impact: S&P500, Nasdaq edge lower after FOMC hits pause on rates
Wall Street stocks retreated Wednesday after the Federal Reserve kept interest rates unchanged, but signaled it expects additional increases in 2023. The US central bank, as expected, opted to hold its benchmark lending rate between 5.0 per cent and 5.25 per cent. However, forecasts from the policymakers indicated strong support for two more smaller hikes by the end of 2023.
After the Fed statement the Dow Jones Industrial Average deepened its losses, falling 388.86 points, or 1.14 per cent, to 33,823.26. The S&P 500 turned negative and was last down 23.81 points, or 0.54 per cent, at 4,345.2 while the Nasdaq Composite also turned red, dropping 77.68 points, or 0.57 per cent, to 13,495.65.
MSCI’s gauge of stocks across the globe shed 0.23 per cent after rising as much as 0.61 per cent earlier in the session. In currencies, the dollar index fell 0.116 per cent, with the euro up 0.17 per cent to $1.0809. The Japanese yen strengthened 0.14 per cent versus the greenback at 140.01 per dollar, while Sterling was last trading at $1.2638, up 0.21 per cent on the day.
In energy, crude oil futures added to losses after the Fed’s news. The commodity had already given up earlier gains as traders weighed an unexpected, large build in US crude oil against bullish demand growth forecasts. US crude recently settled down 1.66 per cent at $68.25 per barrel while Brent settled at $73.20, down 1.47 per cent.
Catch live updates from Fed rate decision coverage
US Fed’s decision broke a streak of 10 straight Fed meetings in which the central bank lifted interest rates in response to elevated inflation. The US dollar also declined but edged higher from four-week lows, after the Federal Reserve meeting outcome.
That surprise indication of two more hikes caused yields in the bond market to immediately erase earlier losses. The 10-year yield rose to 3.82 per cent from 3.77 per cent just before the Fed’s announcement. It was at 3.82 per cent late Tuesday. That yield helps set rates for mortgages and other important loans.
According to data released on July 13, US consumer price inflation (CPI) jumped 4.0 percent from a year ago in May, less than half of a recent peak level but still well above the Fed’s two percent target. A note from High Frequency Economics characterized Wednesday’s decision as a “hawkish pause.”
In order to balance risks to the US economy with a still unresolved fight to control inflation, “holding the target (interest rate) range steady at this meeting allows the committee to assess additional information and its implications for monetary policy,” the rate-setting Federal Open Market Committee (FOMC) said in a unanimous policy statement.
Further rate increases would “take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” it said.
Speaking after the release of the Fed statement, Fed Chairman Jerome Powell noted that as the Fed has paused rates, “we’ve covered a lot of ground and the full effects of our tightening have yet to be felt.” Powell added nearly all Fed officials expect more rate rises this year, and he noted that even as officials have not decided what they will do with rates at coming meetings, the July FOMC gathering is a “live meeting” which could bring another rate increase.
Know your inner investor
Do you have the nerves of steel or do you get insomniac over your investments? Let’s define your investment approach.
Download The Mint News App to get Daily Market Updates.
Updated: 15 Jun 2023, 12:51 AM IST
