Latest Fed policy statement sends stocks lower
U.S. stocks finished lower as the Federal Reserve struck a somewhat hawkish tone in its latest policy statement. Treasuries fell, while the dollar retreated after spiking to session highs. Other major currencies fluctuated as investors absorbed the first of three big central bank reports this week.
The Federal Open Market Committee on Wednesday raised rates and signaled it may pick up the pace of increases this year as unemployment falls and inflation flirts with target levels. Ten-year Treasury yields briefly crossed the 3 percent threshold after the announcement. The S&P 500 Index closed near its low for the day.
“The FOMC is now signaling two more hikes this year and has dropped its increasingly stale signal to markets that rates will remain for some time below those levels expected in the long term,” James McCann, global economist at Aberdeen Standard Investments, said in a note. “This shift reflects the robust domestic growth backdrop, which is being fermented by a late-cycle fiscal stimulus.”
Fed Chairman Jerome Powell told reporters that unemployment and inflation are both low, and that raising rates too slowly or quickly could be harmful. He added that the bank won’t over-react to inflation levels above 2 percent. Powell also announced he would hold press conferences at every Fed meeting starting in January.
The euro dropped after the Fed decision only to recover to session highs. The pound also erased losses from a post-Fed swoon. The European Central Bank will decide rates on Thursday — no change is expected but investors will be braced for news on a potential end to the region’s quantitative-easing program. The Bank of Japan reports Friday.