Stocks close lower ahead of Fed rate-hike decision

Stocks finished broadly lower Tuesday as Wall Street, increasingly anxious about the slowing economy, looks ahead to a widely expected interest rate increase by the Federal Reserve in its bid to squash the highest inflation in decades.

The Standard & Poor’s 500 index fell 1.1%, as more than 90% of stocks and every sector in the benchmark index lost ground. The Dow Jones industrial average and the Nasdaq composite also fell 1%.

The selling came as traders wait to see how high the Fed will raise interest rates at its meeting that ends Wednesday.

The central bank is widely expected to announce a hefty increase of three-quarters of a point, its third such hike in a row. Investors also will be listening intently to Fed Chair Jerome H. Powell for any clues on how aggressively the central bank will move from here to tame inflation.

“The market is certainly bracing for the worst, and you’re seeing a little bit of selling pressure coming in,” said Paul Kim, chief executive of Simplify ETFs.

The S&P 500 fell 43.96 points to 3,855.93, while the Dow dropped 313.45 points to 30,706.23. The Nasdaq lost 109.97 points to close at 11,425.05.

Retailers, technology stocks, healthcare companies and banks were among the biggest weights on the market. Best Buy fell 4.1%, Microsoft slid 0.8%, Abbott Laboratories dropped 1.7% and JPMorgan Chase closed 2% lower.

U.S. crude oil prices fell 1.5% and weighed down energy stocks.

Smaller-company stocks fell more than the broader market. The Russell 2000 index gave up 25.34 points, or 1.4%, to close at 1,787.50.

Bond yields mostly edged higher. The yield on the 10year Treasury, which influences mortgage rates, rose to 3.56% on Tuesday from 3.52% late Monday and is trading at its highest levels since 2011. The yield on the two-year Treasury, which tends to follow expectations for Fed action, held steady at 3.95%, hovering around its highest levels since 2007.

Stocks have been slumping and Treasury yields rising as the Fed raises the cost of borrowing money in hopes of slowing down the hottest inflation in four decades. The central bank’s aggressive rate increases have been making markets jittery, especially as Fed officials assert their determination to keep raising rates until they are sure inflation is coming under control.

Powell bluntly warned in a speech last month that the rate hikes would “bring some pain.”

“He has done everything he possibly can to signal that it’s going to be another aggressive move,” said Liz Young, head of investment strategy at SoFi. “He’s been clear as a bell about what they’ve been focused on.”

If the Fed raises its key short-term rate by threequarters of a point Wednesday, that would lift its benchmark rate — which affects many consumer and business loans — to a range of 3% to 3.25%, the highest level in 14 years and up from zero at the start of the year.

Such a rate increase may give stocks a small boost, reflecting relief among traders that the central bank didn’t opt for a 1% increase, Kim said.

Beyond that, investors will be focused on what Powell has to say, both in the Fed’s latest interest rate policy statement and during an afternoon news conference, for clues as to whether the central bank remains primarily focused on lowering inflation, or if there’s a hint the Fed is giving more consideration to the effect of higher rates on the economy.

“As long as the Fed sticks to this game of chicken and sticks to inflation as its only mandate, the market will keep dropping,” Kim said.

Wall Street is worried that the rate increases could go too far in slowing U.S. growth and push the economy into a recession. Those concerns have been heightened by data showing that the economy is slowing and by companies warning about the effect of inflation and supply chain problems.

Ford fell 12.3% for the biggest decline in the S&P 500 after slashing its third-quarter earnings forecast because a parts shortage will leave it with as many as 45,000 vehicles unfinished on its lots when the quarter ends Sept. 30.

The U.S. isn’t alone in suffering from hot inflation or dealing with the effect of efforts to fight high prices.

Sweden’s central bank on Tuesday raised its key interest rate by a full percentage point to 1.75% as it scrambles to ease inflation that was measured at 9% in August.

Consumer inflation in Japan jumped in August to 3%, its highest level since November 1991. The Bank of Japan is set to have a policy meeting later this week, although analysts expect the central bank to stick to its easy monetary policy.

Rate decisions from Norway, Switzerland and the Bank of England are next.

Markets in Europe mostly fell, while markets in Asia gained ground.