US stocks fell Wednesday after the Federal Reserve raised inflation expectations and postponed the timeframe for the next rate hike.
The Dow Jones Industrial Average closed the day 265.66 points lower, or 0.8%, to 34,033.67. The blue-chip average fell significantly after the Fed’s statement and even fell by 382 points. The S&P 500 lost 0.5% to 4,223.70 which was dragged down by utilities and consumer staples. The broad equity benchmark lost up to 1% in volatile trading, as all 11 sectors fell once into the red. The Nasdaq Composite fell 0.2% to 14,039.68 after falling 1.2% from its daily low.
The Federal Open Market Committee suggested that rate hikes could happen as early as 2023 after signaling in March that there had been no hikes by this year.
“The market didn’t expect that,” said James McCann, deputy chief economist at Aberdeen Standard Investments. “The Fed is now signaling that interest rates need to rise sooner and faster … This change in attitude is somewhat at odds with recent Fed claims that the recent surge in inflation is temporary.”
The key equity benchmarks exchanged their daily lows after Chairman Jerome Powell said at a press conference that the so-called dot-plot forecasts, which detail members’ forecasts for future rate hikes, should be viewed with a “big grain of salt.” and that the start is “far in the future”.
The central bank gave no indication of when it will cut its aggressive bond-buying program, which has also helped support the markets. The Fed buys $ 120 billion worth of bonds every month as the economy continues to recover from the coronavirus pandemic.
The Fed chief said the central bank would give an “advance notice” before announcing its move to reduce asset purchases.
“You can think of this meeting we had as the ‘talk about the talk’ meeting,” Powell said. “In the coming meetings, the committee will continue to evaluate the progress of the economy towards our goals. As mentioned, we will give advance notice before we announce a decision about changes to our purchases.”
The Fed also raised its headline inflation forecast to 3.4% in 2021, a full percentage point above the March projection, but the post-meeting statement continued to say that inflationary pressures were “temporary”.
The meeting took place as inflation warmed and producer prices rose in May at the highest annual rate in nearly 11 years, a report on Tuesday showed.
Powell said inflation could get hotter than the Fed expects during the economic recovery.
“During the reopening, there can be large and rapid shifts in demand, and bottlenecks, hiring difficulties and other restrictions could continue to limit the ability to adjust quickly, increasing the possibility that inflation could be higher and more persistent than we expect. Powell said during the press conference.
The economic reopening games offered some support to the broader market. Royal Caribbean and Norwegian Cruise Line both gained about 2% after upgrading Wolfe Research. United Airlines and American Airlines also recorded growth.
On Wednesday, China said it would release industrial metals like copper, aluminum and zinc from its national reserves in an effort to lower commodity prices. Copper has fallen more than 10% from its record high and dipped into correction territory on Tuesday.
– CNBC’s Jeff Cox contributed to the coverage.
Become a smarter investor with CNBC Pro.
Get stock picks, analyst calls, exclusive interviews and access to CNBC TV.
Sign in to one. to start Try it for free today