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Wall Street’s major indexes edged lower on Wednesday in choppy trade after the Federal Reserve raised its benchmark interest rate by 25 basis points as expected and Fed Chair Jerome Powell said there would be no rate cuts this year.
The S&P 500 (SP500) and Dow (DJI) both spiked to their highest level in more than two weeks immediately after the Fed’s hike, while Nasdaq (COMP.IND) climbed to an over one-month high.
However, the indexes took a hit after Powell in a press conference said Fed officials don’t see rate cuts this year as inflation remains too high. He added that the Fed is willing to raise rates higher than expected if needed.
The three major indexes swung between gains and losses in typical market volatility following the Fed’s move. The Dow (DJI) fell 0.9%, the S&P 500 (SP500) slid 0.8%, and the Nasdaq (COMP.IND) was 0.6% lower.
While some additional policy firming may be needed, the Fed projected just one more rate hike for the year. The majority of Fed officials see the key policy rate topping out at 5.1% at the end of 2023. The Fed did consider a pause in days leading up to the meeting, Powell said.
“Initial response to FOMC decision: Hike but leave the door open to pause due to uncertainties,” Schwab fixed income strategist Kathy Jones tweeted. “Median dots stay at 5.1% despite upward revision to inflation for this year. Call it a ‘dovish hike’ I suppose.”
Markets are now pricing in about even odds between a 25-basis point hike and no hike at all at the next meeting in May, according to CME FedWatch Tool, as well as a small chance of a cut in June.
The Fed stressed that the U.S. banking system is sound, but noted that recent developments will likely result in tighter credit conditions. Powell said the Fed will use all tools to ensure that bank deposits remain “safe and sound”.
Meanwhile, Treasury Secretary Janet Yellen in her testimony at a Senate hearing said the government is not considering insuring all uninsured bank deposits.
Yields pushed lower, with the 10-year Treasury yield (US10Y) down 13 basis points at 3.47% and the 2-year yield (US2Y) down 23 basis points at 3.95%.
Among active stocks, Nvidia (NVDA) gained as analysts lauded its announcements from the GTC developer conference. Nike (NKE) was the biggest drag on the Dow, falling 3.4% after its earnings report divided analyst opinions.