Stocks, Bond Yields Tumble After Fed Rate Hike

But Powell hints there may be only one more rise to come
By Newser Editors and Wire Services
Posted Mar 22, 2023 4:04 PM CDT
Stocks, Bond Yields Tumble After Fed Rate Hike
Displays show Fed Chairman Jerome Powell's news conference while traders work on the floor at the New York Stock Exchange in New York, Wednesday, March 22, 2023.   (AP Photo/Seth Wenig)

Stocks fell Wednesday after the Federal Reserve announced its latest hike to interest rates, while also saying it may not tighten the screws on the economy much more. The S&P 500 fell 65.90 points, or 1.6%, to 3,936.97. The Dow Jones Industrial Average fell 530.49 points, or 1.6%, to 32,030.11. The Nasdaq composite fell 190.15 points, or 1.6%, to 11,669.96. The Fed raised its key overnight rate by a quarter of a percentage point, the same as its last increase, in its campaign to drive down inflation. It also said it may raise rates only one more time as it assesses the fallout from the crisis in the banking industry, the AP reports. Banks have been struggling under the weight of much higher rates.

Instead of repeating its statement that "ongoing increases will be appropriate," the Fed made sure to say Wednesday that only "some additional policy firming may be appropriate." Chair Jerome Powell emphasized the shift to "may" from "will." The Fed also released the latest set of projections from its policymakers on where rates are heading in coming years. The median forecast had the federal funds rate sitting at 5.1% at the end of this year, up only a smidge from where it currently sits, in a range of 4.75% to 5%. That helped to send yields slumping in the bond market, which has been home to some of the wildest action this month.

The yield on the two-year Treasury, which tends to track expectations for the Fed, tumbled to 4.00% from 4.13% just before the projections were released. It was above 5% earlier this week, and a drop that size for the bond market is a massive one. The Fed was stuck with a difficult decision as it balanced whether to keep hiking rates to drive down inflation or ease off the increases given the pain they've already caused for the banking industry, which could drag down the rest of the economy. A worry is that too much pressure on the banking system, particularly among the smaller and mid-size banks at the center of investors’ crosshairs, would mean fewer loans made to businesses across the country.

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Powell said such a pullback in lending could act almost like a rate hike on its own. And that was one of the reasons the Fed opted to raise by only 0.25 points instead of 0.50 points. He also said that he sees the banking system overall as strong and sound. On Wall Street, some of the biggest excitement was around what are called "meme stocks." GameStop shot up 35.2% after it reported a surprise profit for its latest quarter. Analysts were expecting another loss for the struggling video game retailer. The stock rocked Wall Street in early 2021 when hordes of smaller-pocketed and novice investors piled into it, sending its price surging and inflicting big losses on hedge funds that had bet on its decline.

(More stock market stories.)

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