Stocks drop as interest rate rises

U.S. stocks fell and Treasuries rose after the Federal Reserve signaled it’ll keep raising interest rates even as inflation remains tepid.

The S&P 500 fell 0.3 percent, with the bulk of losses coming in the final 20 minutes of trading. Equities earlier gained after the central bank suggested inflation remained tepid, only to reverse as Chairman Jerome Powell said the Fed could raise rates past the perceived neutral level. He also raised concern about fiscal policy, calling its path “unsustainable.” The dollar was little changed after swinging between small gains and losses.

Powell addressed financial markets directly in his comments, saying that officials “judged the overall vulnerabilities to be moderate” while acknowledging some asset prices are in the “upper reach of their historical ranges.” American equities closed Friday at a record, while the 10-year yield rose to near its highest of the year. Oil prices hit a four-year high Tuesday before pulling back amid news U.S. production topped 11 billion barrels a day.

The Fed’s statement provided ammunition for hawks and doves alike as investors parsed the language for clues on monetary policy. Officials’ projections for the future path of rates steepened, even as the Fed acknowledged inflation shows no signs of accelerating.

“The market shouldn’t be too surprised by anything,” said Michael Ning, the chief investment officer at Phase Capital. “I have to give the Fed credibility for being very consistent, and they delivered.”

Elsewhere, Japan’s Topix ended just below its highest point in almost eight months, while stocks rallied in Hong Kong as traders returned from a holiday and Chinese shares rose after MSCI Inc. said it’s considering increasing the country’s weight in its global indexes.