Stocks closed sharply lower on Wall Street and bond yields rose after the Federal Reserve stepped up its fight against inflation by sharply raising interest rates.
The S&P 500 lost 66 points, or 1.7%, on Wednesday to end at 3,789 points. The Dow Jones Industrial Average also fell 1.7%, while the Nasdaq sank 1.8%.
The Fed raised its target rate, as expected, the fifth time this year policy makers have raised borrowing costs. But the central bank also said it expects to keep rates higher for longer and to raise the Federal Funds rate next year to 4.6%, which would be the highest level since 2007.
“The market is beginning to believe that the Fed is willing to cause a recession in order to bring inflation back down,” Chris Zaccarelli, chief investment officer at the Independent Advisor Alliance, said in an email.
Treasury yields pushed further into multiyear highs. The yield on the 2-year Treasury, which tends to follow expectations for Fed action, rose to 4.02% from 3.97% late Tuesday. It is trading at its highest level since 2007. The yield on the 10-year Treasury, which influences mortgage rates, fell to 3.51% from 3.56% late Tuesday.
The Fed has been raising rates aggressively to try to tame the, which has affected the cost of everything from food to clothing. But Wall Street is worried that it could hit the brakes too hard on an already slowing economy and cause a recession. Those concerns have been reinforced by reports showing that inflation remains stubbornly high, even as the Fed’s own projections forecast a sharp economic slowdown this year and next.
Central banks worldwide are also dealing with inflation. Global tensions remain high ascontinues. Russian-controlled regions of eastern and southern Ukraine have announced plans to start voting this week to become part of Russia. The war has killed thousands of people, driven up food prices worldwide and caused energy costs to soar.
Gasoline prices, which helped fuel inflation for months, have been generally falling. But, the average price for a gallon of gas went up for the first time in more than three months, rising to to $3.681 from $3.674, according to motor club AAA.
Several companies gained ground after giving investors encouraging financial updates. Cheerios maker General Mills rose 6.6% after raising its profit forecast for the year. CoverGirl owner Coty rose 5.8% following a solid revenue growth update and Walmart rose 2.8% after saying it will hire 40,000 U.S. workers for the holidays, a majority of them seasonal workers.
Cruise line operators slipped as Hurricane Fiona continued to batter the Caribbean. Carnival fell 3.2%.