Stocks down as Fed signals more rate hikes

U.S. stocks fell, while the dollar tumbled and Treasuries gained after the Federal Reserve’s first decision under Chairman Jerome Powell came in less hawkish than some investors had been anticipating.

Following a whipsaw session, the S&P 500 close lower as the central bank raised rates and signaled it will do so two more times this year as the economy continues to pick up speed. Treasuries briefly erased gains before turning higher, sending rates lower amid relief that the Fed isn’t spoiling to increase the pace of tightening. The dollar added to losses sparked when the U.S. made concessions in trade talks with its neighbors.

The Fed raised the benchmark lending rate a quarter-point and forecast a steeper path of hikes in 2019 and 2020, citing an improving economic outlook. Powell did little to rattle markets during his first press conference at the helm of the central bank, downplaying the individual forecasts from policy officials. His basic message was that the fiscal policies will continue to improve economic growth without an outsize increase in inflation.

“Despite speculation that the Fed might signal a more aggressive approach to tightening monetary policy this year, the projection of three rate hikes in 2018 is in line with expectations,” Bob Baur, chief global economist at Principal Global Investors, which manages $445 billion, said in an email. “All of the salient economic and market data supports the Fed’s decision to maintain the status quo.”

The vote to lift the federal funds rate target range to 1.5 percent to 1.75 percent was a unanimous 8-0. In the forecasts, U.S. central bankers projected a median federal funds rate of 2.9 percent by the end of 2019, implying three rate increases next year, compared with two 2019 moves seen in the last round of forecasts in December. They saw rates at 3.4 percent in 2020, up from 3.1 percent in December, according to the median estimate.

Energy producers led earlier gains in the major U.S. benchmarks, with trading about 20 percent below the 30-day average as a snowstorm battered New York.