The stock market experienced a decline on Wednesday following the Federal Reserve’s decision to raise interest rates, aiming to combat inflation. The S&P 500 ended its two-day winning streak by dropping 0.61% to 3,995.32, while the Dow Jones Industrial Average fell 0.42% to 33,966.35. The Nasdaq Composite also decreased 0.76% to 11,170.89.
Fed’s Chair, Jerome Powell, hinted that the central bank would require more data before changing its views on inflation, leading to the session’s lows. Powell stated, “The inflation data received so far for October and November show a welcome reduction in the monthly pace of price increases. But it will take substantially more evidence to give confidence that inflation is on a sustained downward path.
Chair Powell answers reporters' questions at the FOMC press conference on March 22, 2023. https://t.co/siWde1ROZb pic.twitter.com/CoJcKOhfAT
— Federal Reserve (@federalreserve) March 22, 2023
The Fed’s December policy meeting concluded with a 50 basis point rate hike, lower than the previous four consecutive hikes of 75 basis points. Additionally, the Fed plans to increase rates throughout 2022, not planning to lower rates until 2024. It anticipates that the terminal rate, the rate at which it will stop hiking, will be at 5.1%, higher than the previously forecasted 4.6% level.
According to Jim Caron of Morgan Stanley Investment Management, the “big issue that makes it hawkish is that the Fed’s forecasts put the terminal rate at 5.1% for 2023 from 4.6% at the September meeting. There’s no tip of the hat to the notion that [the pace of] inflation is starting to decline. They just completely ignored it.”
During Powell’s press conference, Treasury yields fluctuated as the central bank indicated further rate hikes ahead. Despite the decline in the stock market, the Fed’s decision aimed to crush inflation and provide a stable economic outlook for the future.
