The Fed’s 0.5% increase to the highest level since 2007, stocks decline.
The Fed’s 0.5% increase to the highest level since 2007, stocks decline.Following the Federal Reserve’s seventh and last interest rate hike of 2022 on Wednesday afternoon, U.S. markets fell.
The key policy rate was increased by half a percentage point by the central bank, lowering the rate of increases from 0.75% over the previous four sessions. With this change, the federal funds rate has reached its highest level since December 2007 and is now in the range of 4.25% to 4.5%.
Following the judgment, all three main averages erased prior advances. The Dow Jones Industrial Average (DJI) decreased 160 points and the S&P 500 (GSPC) declined by 0.7%. The heavily tech-focused Nasdaq Composite (IXIC) fell 1%.
At 2:30 PM ET, investors will evaluate comments made by Fed Chair Jerome Powell.
The Fed’s decision was accompanied by updated economic projections that show officials now expect benchmark interest rates to peak at 5.1% in 2023, up 50 basis points from the previous forecast of 4.6% in September. After that, according to officials, rates will decline to 4.1% in 2024, which is a little more than anticipated.
In addition, the central bank stated it expects “ongoing rises” in interest rates in its announcement on Wednesday, suggesting the Fed has no immediate plans to stop raising rates.
The choice was made in light of Wednesday’s carefully awaited Consumer Price Index (CPI) statistics for November, which showed a 7.1% annual increase last month—the second straight negative surprise in inflation data. Following the release of the report, stocks closed higher, but Wall Street’s response was underwhelming because it is still unclear how far rates must rise in order to bring down prices that are consistently high.
Yung-Yu Ma, the chief investment strategist at BMO Wealth Management, wrote in an email that while Wednesday’s decrease in inflation was good, the equity markets mostly erased the gains that had been made immediately after the print as a result of traders’ “what now?” questions.
“A dovish turn is still a long way off,” Ma continued, “and in the meanwhile, companies and consumers have to adapt to the impact of increasing interest rates and a weakening economy.” It’s all a balancing act, and even though the inflation background is improving, this suggests bumpy markets in the near term.
Other Wall Street analysts agreed with that assessment, including Bank of America Chief U.S. Economist Michael Gapen, who said that while core goods inflation retraced more quickly than anticipated in November’s consumer price report, services inflation remained sticky.
In a note he and his team at BofA wrote, Gapen stated, “It may raise discussions of another downshift in February.” Given the tight labor market and high pay growth, “we still expect they go by 50 basis points, but the debate should be livelier, especially if we receive another lackluster December inflation data.”
Sofi (SOFI) shares increased more than 8% during trading on Wednesday as a result of news that Chief Executive Officer Anthony Noto had spent $5 million on the stock.
Shares of Charter Communications (CHTR) fell about 14% as a result of a wave of downgrades that came after the telecom giant revealed during its investor day that it would be spending more than anticipated, starting with $10.7 billion in 2023, on a high-speed internet upgrade.
Despite plunging by more than 4% in the previous session, Tesla (TSLA) continued to decline.
increases in the broadest indices after weaker CPI data. The price cut by Goldman Sachs and sustained selling pressure due to worries over CEO Elon Musk’s Twitter management led to declines in Tesla on Wednesday.
The price of Tesla’s shares has dropped more than 18% this month and 50% so far this year. The price has plummeted by almost 28% since Musk’s acquisition of Twitter agreement was finalized on October 27.
Given that the government’s retail sales report is also scheduled for release on Thursday, this week represents what for investors may be the final week of significant U.S. economic events of the year. The U.K. Bank of England, Mexico, Norway, the Philippines, Switzerland, and Taiwan policymakers are all scheduled to announce their own rate decisions on Thursday, keeping traders busy locally despite a jam-packed economic calendar.
On Tuesday, the UK reported its own inflation rate: Consumer price inflation increased quickly in November, slowing somewhat from the month before when it reached a 41-year high of 11.1% to 10.7% from a year earlier. As investors awaited the remarks from the US Federal Reserve later today and the Bank of England’s rate decision on Thursday, U.K. stocks fell. Near its highest level since June, the pound was trading.
Back home, attention was focused on the most recent developments in the cryptocurrency industry as Sam Bankman-Fried, the former CEO of the defunct cryptocurrency exchange FTX, was being prosecuted on a number of criminal counts for his handling of investor and client funds.
On the corporate front, earnings reports are expected on Wednesday from organizations like Lennar (LEN), Trip.com (TCOM), and Weber (WEBR).