Stocks edge lower ahead of Fed decision
World shares mixed
NEW YORK, March 22, (AP): Stocks edged lower on Wall Street Wednesday ahead of the Federal Reserve’s announcement in the afternoon about whether it will tighten the screws further on the economy.
The S&P 500 fell 0.3% in afternoon trading. It’s coming off its first back-to-back gain in two weeks, before the second- and third-largest U.S. bank failures in history threw the industry into turmoil.
The Dow Jones Industrial Average fell 140 points, or 0.4%, to 32,421 as of 1:11 p.m. Eastern time, while the Nasdaq composite fell 0.1%.
Markets are waiting for the Fed, which is stuck with a difficult decision: whether to keep hiking interest rates to drive down inflation or to ease off the increases given the pain it’s already caused for banks, which could drag down the rest of the economy.
A few weeks ago, much of Wall Street was convinced the Fed would pick up the pace on rate hikes given how stubbornly high inflation has remained. The bet was for the Fed to raise rates by 0.50 percentage points Wednesday, up from its prior hike of 0.25 points.
Higher rates can undercut inflation by slowing the economy. But they raise the risk of a recession later on, and they also hurt prices for stocks and other investments. That latter factor was one of the reasons for the collapse of Silicon Valley Bank two weeks ago. Its bond investments fell in price as the Fed jacked up rates over the last year at the fastest pace in decades.
Silicon Valley Bank also suffered from what’s called a bank run, where its customers began pulling money out at the same time in a debilitating cascade. Since then, investors have been hunting for what bank may be next to fall, and regulators around the world have been trying to strengthen confidence in the industry.
Because of all the turmoil, Wall
Street is now largely betting the Fed will raise rates by just 0.25 points this afternoon. A minority are even guessing it may hold rates steady.
A worry is that too much pressure on the banking system, particularly among the smaller and mid-sized banks at the center of investors’ crosshairs, would mean fewer loans to companies across the country. That in turn could mean less hiring and less economic activity, raising the risk of a recession that many economists already see as high.
Besides its latest move on rates, the Fed this afternoon will also release its latest projections for where inflation, the job market and interest rates are heading in future years.
Last week, the European Central Bank pushed through a hefty hike to its key rate, despite speculation that it may ratchet back given all the banking woes.
Its president, Christine Lagarde, said Wednesday the path remains remarkably open and that it could raise rates further or halt depending on how conditions evolve.
What makes the decision so tough for central banks is how strong inflation has remained despite drastic increases to interest rates. It’s come down since last summer, but it’s still painfully hot and hurts the least wealthy people the most.
In the U.K., a report showed that inflation accelerated for the first time in four months in February. That adds pressure on the Bank of England before its decision on rates Thursday.
Markets around the world have pinballed sharply this month on worries the banking system may be cracking under the pressure of much higher rates. They found some strength recently after U.S. Treasury Secretary Janet Yellen indicated the government may back depositors at more weakened banks if the system is at risk.
That could mean making sure even customers with more than the $250,000 limit insured by the Federal Deposit Insurance Corp. can get all their money. Across the Atlantic, regulators also pushed a deal for one Swiss banking giant to buy its troubled rival.
On Wall Street, some of the biggest
excitement was around what are called “meme stocks.”
Europe
European shares were mixed Wednesday after a day of gains in Asia ahead of a decision by the Federal Reserve on interest rates.
Benchmarks fell in Paris and London but rose in Frankfurt and most Asian markets. Oil prices fell back and U.S. futures edged lower.
Tuesday on Wall Street, the S&P 500 rose 1.3% to lock in its first back-toback gain since Silicon Valley Bank’s rapid failure began two weeks ago. Some of Wall Street’s fears over the banking sector were calmed by Treasury Secretary Janet Yellen’ s assurance
that the government could provide more assistance to lenders if needed.
Investors are awaiting an interest rate decision by the Federal Reserve, which is expected to temper its efforts to tame inflation given the recent turmoil that has wracked the banking sector. Most economists expect the Fed to announce a relatively modest quarter-point hike in its benchmark rate, its ninth hike since March of last year.
Britain’s consumer inflation rate jumped to 10.5% in February from 10% the month before in a sign that price pressures persist that surprised analysts and added to pressure on the Bank of England to raise interest rates at its meeting on Thursday.
In London, the FTSE 100 lost 0.2%
to 7,520.61 and the CAC 40 in Paris was unchanged at 7,112.62. Germany’s DAX gained 0.3% to 15,242.53.
The futures for the S&P 500 and the Dow Jones Industrial Average slipped 0.1%.
Markets around the world have pinballed sharply this month on worries the banking system may be cracking under the pressure of the fastest set of hikes to interest rates in decades.
Asia
In Asian trading, Tokyo’s Nikkei 225 surged 1.9% to 27,466.61, catching up on gains after the market was closed on Tuesday for a holiday. Hong Kong’s Hang Seng index advanced 1.7% to 19,591.43 and the Shanghai Composite
index added 0.9% to 3,265.75.
Australia’s S&P/ASX 200 jumped 0.9% to 7,015.60. The Kospi in South Korea climbed 1.2% to 2,416.96.
Crude
In other trading Wednesday, U.S. benchmark crude oil lost 42cents to $69.25 per barrel in electronic trading on the New York Mercantile Exchange. It jumped $1.85 to $69.67 on Tuesday.
Brent crude, the pricing basis for international oils, gave up 34 cents to $74.98 per barrel.
Currencies
The dollar fell to 132.42 Japanese yen from 132.47 yen. The euro rose to $1.0792 from $1.0770.