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NEW YORK, Dec 14 (Reuters) – U.S. stocks closed lower in volatile trading on Wednesday after a Federal Reserve policy announcement that raised interest rates by an expected 50 basis points, but its economic projections predict higher rates for a longer period.
The central bank raised interest rates by half a percentage point on Wednesday and projected at least an additional 75 basis points of rise in borrowing costs through the end of 2023, as well as a rise in unemployment and a near stagnation in economic growth. .
The latest quarterly summary of the Fed’s economic projections shows that US central bankers see the interest rate – now in the 4.25% to 4.5% range – at 5.1% by the end of next year, according to with the average estimate of all 19 Fed policymakers above the 4.6% view at the end of September.
In comments following the statement, Fed Chair Jerome Powell said it was too early to talk about rate cuts as the focus is on making central bank policy tight enough to push inflation towards its 2% target. .
Economic data released on Tuesday, which showed a cooling in consumer inflation in November, raised expectations that a Fed move to halt interest rate hikes could be on the horizon next year.
“They could be using this kind of very aggressive dot chart forecasting to take the wind out of the easing that has taken place over the last couple of months,” Rhys Williams, chief strategist at Spouting Rock Asset Management in Bryn Mawr, Pa., said of the February policy makers.
“Conditions have improved, and that’s their way of complaining, they’re not going to let any real relief happen until they see unemployment go up.”
The Dow Jones Industrial Average (.DJI) was down 142.29 points, or 0.42%, to 33,966.35, the S&P 500 (.SPX) lost 24.33 points, or 0.61%, to 3,995.32 and the Nasdaq Composite (.IXIC) was down 85.93 points, or 0.76%, to 11,170.89.
[1/6] Screens on the floor of the New York Stock Exchange (NYSE) show Federal Reserve Chairman Jerome Powell during a news conference after the Federal Reserve announced that interest rates will increase by half a percentage point, in New York City, USA, on December 14, 2022. REUTERS/Andrew Kelly
Nearly all of the S&P’s 11 major sectors ended the session in negative territory, with health (.SPXHC) the only advance. The financial sector (.SPSY), down 1.29%, was the sector with the worst performance.
Despite the Fed’s statement, US Treasury yields were slightly lower after initially bouncing in the wake of the announcement.
The strategy of aggressive interest rate hikes by the world’s main central banks this year has raised concerns that the global economy could be pushed into a recession and has weighed heavily on riskier assets such as equities this year.
Each of Wall Street’s three major averages is on course for its first annual decline since 2018 and its biggest annual percentage decline since the 2008 financial crisis.
Tesla Inc (TSLA.O) fell 2.58% after a Goldman Sachs analyst cut a price target for shares of the electric vehicle maker.
Charter Communications Inc (CHTR.O) fell 16.38% as brokers cut their price targets following the telecom services company’s mega-spending plans for a high-speed internet upgrade.
Volume on US exchanges was 12.15 billion shares, compared with a full-day average of 10.55 billion shares over the past 20 trading sessions.
Declining issues outperformed rising ones on the NYSE by a ratio of 1.39 to 1; on Nasdaq, a ratio of 1.42 to 1 favored decliners.
The S&P 500 posted eight new 52-week highs and two new lows; the Nasdaq Composite recorded 82 new highs and 223 new lows.
Chuck Mikolajczak; reporting by Chuck Mikolajczak; Editing by Jonathan Oatis
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