Stock markets rose Wednesday but ultimately fell after Federal Reserve Chairman Jerome H. Powell dashed investor hopes that the end of central bank rate hikes may soon be over. and closed the deal.
The S&P 500 plunged to a 2.5% loss in a day after swinging between gains and losses as Powell spoke about the Fed’s latest decision at an afternoon press conference.
Stocks started the day lower as investors braced for the Federal Reserve’s (Fed) hike in interest rates by another 0.75 percentage points. The central bank followed through on its predictions, but attention soon turned to what he thought the Fed would do about future rate hikes.
The Fed’s first statement, released in conjunction with the rate hike decision, appeared to indicate a more cautious approach, explaining the large rate hikes that had already occurred and the economic impact of those rate hikes being felt. He points out that it may still take some time.
The S&P 500 rallied and climbed into positive territory shortly after the statement was released. But the recovery quickly stalled once Mr. Powell began public comment, and rates could be higher than previously expected.
He said it was “premature” to talk about rising suspension rates. Investors reacted quickly and the S&P 500 plummeted. Treasury trading reversed as well, with yields rising in the late afternoon. The Fed’s change-sensitive 2-year Treasury yield rose 0.06 percentage points to close at 4.59%.
What a Federal Reserve rate hike means for you
Renter’s toll. The Federal Reserve has been raising the main interest rate, the Federal Funds Rate, in an attempt to keep inflation in check. By raising the rates banks charge each other for overnight loans, the Fed will create a ripple effect. Directly or indirectly, consumer borrowing costs will rise.
“Wow! If you’re listening in the back to see if you’re still there and your dad says there’s still a long way to go, you’re on your way,” said Rob Waldner, chief fixed income strategist at Invesco. “I was struck by it.”
Thursday’s stock market crash extended to Asia. Most of the region’s markets were down by noon in Seoul, with Hong Kong and Australia’s benchmark indexes each down more than 2%.
Investors hoped that attendance at Wednesday’s Fed meeting could ease the pace of rate hikes.
The S&P 500 rose about 8% in October, partly because corporate earnings beat expectations, but partly because some investors began betting on a pivot in the Fed’s message. It affects
Powell has made similar remarks in the past about the need to ultimately delay rate hikes, but Wednesday’s lesson for investors is that the Fed remains firmly focused on tackling inflation. It was that there was.
But some investors questioned how clear the Fed itself was about what it would take to persuade it to stop raising rates. Mr. Waldner said investors were unsure of what the central bank would do next. It is unclear what is needed to change the
“Until we answer these questions, the volatility will continue,” he said.
Morgan Stanley global chief economist Seth Carpenter said he was waiting for more specifics on when the Fed would decide it was appropriate to stop raising rates before Powell’s press conference. Said there was
The Fed’s first statement, released before Powell spoke, said the central bank was trying to reach a position where inflation would decline “over time.” These words suggest that inflation does not need to fall to his Fed’s 2% target, perhaps just stop accelerating as it has in recent months.
“How clear are they in their minds about what conditions they need to scale back and eventually stop hiking?” Carpenter said.
Vivek Shankar contributed to the report.