Wall Street Falls Overnight as Investors Weigh on Faster-Than-Expected Rate Hike

The U.S. Federal Reserve on Wednesday kept its benchmark interest rates unchanged at the record-low level of near zero, as the economic recovery continues amid growing concerns over inflation surge.

 

U.S. stocks dropped on Wednesday as investors sifted through the Federal Reserve’s latest policy statement.

 

The Dow Jones Industrial Average fell 265.66 points, or 0.77 percent, to 34,033.67. The S&P 500 decreased 22.89 points, or 0.54 percent, to 4,223.70. The Nasdaq Composite Index was down 33.17 points, or 0.24 percent, to 14,039.68.

 

The U.S. central bank on Wednesday kept its benchmark interest rates unchanged at the record-low level of near zero, as the economic recovery continues amid growing concerns over inflation surge.

Fed’s Chairman Jerome Powell stated that the Fed raised GDP expectations for this year to 7% from 6.5% previously. The unemployment estimate remained unchanged at 4.5%.

Meanwhile, the rate hike that was expected to move again in 2024, now expected to be two hikes in 2023.

 

“Progress on vaccinations has reduced the spread of COVID-19 in the United States. Amid this progress and strong policy support, indicators of economic activity and employment have strengthened,” the Fed said in a statement after concluding its two-day policy meeting.

With inflation having run persistently below the 2-percent longer-run goal, the Federal Open Market Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent, the Fed reiterated, acknowledging that inflation has risen, “largely reflecting transitory factors.”

“The statement suggests nothing really changed except the Fed’s economic forecast. They are confident in their projections, comfortable with their plans and sticking to their guns,” Chris Low and Will Compernolle, economists at FHN Financial, said in a note on Wednesday.