Leading stock market indicators fell rapidly Wednesday afternoon on a volatile day of trading following the latest interest rate hike from the Federal Reserve.
The Fed lifted its benchmark rate to 3.25%, the highest it’s been in 14 years.
“We have got to get inflation behind us,” Fed head Jerome Powell said during a press conference. “I wish there were a painless way to do that — there isn’t.”
But the newest increase was mostly priced into the market last week, when stocks tanked on the same day President Biden celebrated the passage of the Inflation Reduction Act.
However, Wednesday still ended with the Dow Jones Industrial Average and S&P 500 each down about 1.7% because the Fed announced plans to raise rates even higher than planned by the end of the year.
Now, the Federal Reserve expects the baseline rate to reach 4.4% by the end of 2022, a significant increase from what it predicted in June.
“The Fed is pivoting, but not in the direction that many hoped for,” said Willie Delwiche, investment strategist at All Star Charts. “Not only are they indicating that rates will be higher for longer, but they expect to persist.”
Last week, an unfriendly inflation report led the Dow to drop more than 1,200 points, its worst day since the pandemic chaos of June 2020.
The Fed’s rate-raising plan is designed to slow inflation, with a target rate of 2%. Last week’s consumer report, which examined prices in August, measured an inflation rate of 8.3%.
“Ultimately, the policy appears to be appropriate given the economic backdrop,” said Charlie Ripley, senior investment strategist at Allianz Investment Management. “But investors should prepare for rough seas ahead as aggressive Fed policy usually leaves a path of destruction in the wake behind.”
With News Wire Services