Stocks sink as the Fed points to a March rate hike

Wall Street had rallied Wednesday but then turned lower after the Federal Reserve signaled that interest rate increases could come as soon as the next meeting in March.

Even though Wednesday’s monetary policy update was broadly in line with expectations, the Fed’s confidence about raising rates and normalizing its massive balance sheet were a little too much for investors to handle.

The Dow finished 0.4%, or 130 points, lower.

The S&P 500 closed down 0.1%.

The Nasdaq Composite ended flat.

All three indexes had spent most of the day trading sharply higher before the post-Powell drop. Wednesday was no exception in the recent string of volatile days in the market.

Traders work on the floor of the New York Stock Exchange on January 26.

Wall Street is really unhappy with Federal Reserve Chairman Jerome Powell today.

After saying the Fed could unwind its balance sheet sooner and faster than expected, Powell didn’t dismiss the possibility that it could hike rates faster than the market expects, either.

Asked about the potential for a half-point rate hike this year, Powell declined to commit one way or another. But he noted that inflation is significantly worse now than it was in 2015, when it last began hiking rates. He also said the job market is in a stronger position.

Still, he said the Fed will begin to discuss rate hikes in March.

Stocks are hating this.

So higher interest rates are coming “soon”.

For government bond yields, which track rate expectations, that means the sky is the limit.

The 10-year Treasury bond jumped back above 1.8% during the Fed’s press conference – a level it hit last week for the first time since the pandemic started.

Toward the end of Powell’s time at the podium, the 10-year bond yielded 1.83%.

If you’re looking for information about the Fed’s stock trading scandal, Fed Chair Jerome Powell has no answers for you.

“We don’t have that information at the Board, and, you know, I asked the Inspector General to do an investigation, and that is out of my hands,” Powell said. “I’m playing no role in it, I seek to play no role in it, and I don’t – I really – I can’t help you here today on this issue. And I’m sorry, I can’t.”

Bloomberg’s Craig Torres asked Powell at the press conference today why the Fed declined to provide the dates of various Fed officials’ stock trades, which could have been made with insider information.

In October, the Fed announced new trading rules following a controversy over trades made by senior officials, which included stricter trading rules and transparency. Several Fed officials resigned.

The market thinks the first rate hike will happen at the Fed’s next meeting in March.

But for anyone unsure, Federal Reserve Chair Jerome Powell just made things real clear:

“I would say the committee is of a mind to raise the federal funds rate at the March meeting assuming that conditions are appropriate for doing so,” he told reporters.

But he noted that the Fed hasn’t yet made a decision, and March is a long time away. So the economic situation could change between now and then.

“Sooner … and perhaps faster.”

That’s how Federal Reserve Chair Jerome Powell described the potential path for rate hikes this year — particularly compared to 2015, when the Fed last hiked rates on an every-other-meeting schedule.

That’s not the message investors were hoping for.

The Dow turned negative, falling 70 points. The index had been up as many as 500 points earlier Wednesday.

The S&P 500 and Nasdaq gave up some of their gains. The S&P 500 was up just 0.1% and the Nasdaq rose 0.6%. But both were significantly higher just an hour ago.

Investors have unsuccessfully been trying to read the tea leaves on the Fed for weeks. Still, Powell said the Fed and investors were on the same page … for some reason.

“We feel like the communications we have with market participants and with the general public are working,” Powell said.

The Federal Reserve building in Washington, DC, on January 26.

The Fed said it will raise rates “soon.” You want more details than that? Fed Chair Jerome Powell says you’re just going to have to read between the lines.

“It is not possible to predict with much confidence exactly what path for our policy rate is going to prove appropriate,” Powell said. “And so at this time we haven’t made any decisions about the path of policy, and I stress again that we’ll be humble and nimble.”

Powell said the Fed would be “guided by the data,” including jobs added to the economy, job openings, quits and other measures that could help give the Fed assurances that it’s time to raise rates sooner or stave off rate hikes.

And yet… Powell kinda sorta hinted that the balance sheet reductions could come sooner and faster than the “every other meeting” pace it has stuck to in recent history.

“We know that the economy is in a very different place than it was when we began raising rates in 2015,” he said. “Specifically, the economy is now much stronger, the labor market is far stronger, inflation is running well above our 2% target, much higher than it was at that time. And these differences are likely to have important implications for the appropriate pace of policy adjustments.”

Updated to reflect Powell spoke about rates and the balance sheet reductions.

America hasn’t fully recovered from the pandemic yet — but the recovery is coming along nicely.

The economy doesn’t need as much help has it has gotten from the Federal Reserve over the past two years, Fed Chairman Jerome Powell said during today’s press conference.

That’s why the central bank is moving to end its stimulus program and raise interest rates, which is also aimed at alleviating inflation pressure.

“Like most forecasters we continue to expect inflation to decline over the course of the year,” Powell said.

Federal Reserve Chairman Jerome Powell has taken the virtual stage in Washington.

In his opening remarks, Powell talked about the Omicron variant that has hamstrung the economy over the last several weeks. If the variant passes quickly, he said, the economic implications should be small.

Wall Street defended its strong gains Wednesday afternoon as the Federal Reserve said it was getting ready to raise interest rates.

“It will soon be appropriate to raise the target range for the federal funds rate,” the Fed’s policy statement read.

That’s good news for investors who have been desperate for the Fed to do something about the high pandemic-era inflation. But generally speaking, higher rates aren’t loved by the stock market.

Either way, the rally remains on.

The Dow climbed 1.2%, or nearly 400 points, while the broader S&P 500 was up 1.9%. The Nasdaq Composite rose 3%.

The Federal Reserve is getting ready to raise interest rates, the central bank said in its monetary policy update Wednesday. But it kept rates near zero for now.

“With inflation well above 2% and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate,” the Fed statement read.

The central bank slashed rates to near zero in March 2020 when the pandemic took the US economy into a choke hold.

Last month, the Fed signaled it would hike interest rates multiple times throughout 2022. Investors expect the first rate hike to take place at the Fed’s next meeting in March: Market expectations for a rate increase in March were at nearly 90% on Wednesday afternoon, according to the CME FedWatch tool.

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The stock market rally continues with less than two hours to go until the Federal Reserve’s monetary policy decision.

The Dow is up 1.1%, or nearly 380 points, while the S&P 500 is trading 1.6% higher.

The Nasdaq Composite is outpacing them both, up 2.4%.

Brent crude topped $90 a barrel on Wednesday, signaling more pain at the pump to come.

Brent, the world benchmark, jumped 2.2% and traded as $90.10 a barrel. It’s the first time Brent has surpassed the $90 threshold on an intraday basis since October 13, 2014.

US crude climbed 2.4% to $87.62 a barrel.

Prices at the pump, which move with a lag, have been ticking higher in recent days.

The national average for regular gasoline rose to $3.34 a gallon on Wednesday, according to AAA. That’s up from $3.32 a week ago and above the recent low of $3.28. The seven-year high from last fall is $3.42. 

 Traders work on the floor of the New York Stock Exchange on January 26 in New York City.

Wall Street is staunchly in the green Wednesday ahead of the Federal Reserve’s policy update. And it’s been a minute since the market had a good day.

January 11 — just over two weeks ago — was the last time the three major indexes were up at least 0.5% simultaneously.

Over that fortnight or so, stocks have been on a wild ride with the S&P 500 closing down 1% or more on six occasions.

It’s been giving investors and market reporters whiplash, and today’s rally shows the volatility is still here.

The S&P rose 0.9%, while the Dow gained a more moderate 0.5%, or about 160 points. The Nasdaq Composite climbed 1.5%.

The CEO of Ukraine’s state energy company has a message for the West: Stand up to Russian president Vladimir Putin.

Yuriy Vitrenko, CEO of Naftogaz, told CNN’s Julia Chatterley on the CNNi First Move show Wednesday that many in Ukraine are “concerned but not afraid” about an imminent invasion by Russia.

“The recipe for success with Putin is to confront him and be able to say no and have other options,” Vitrenko said. “The West should not be afraid to confront Putin and show its strengths.”

Vitrenko wants Germany and others in Europe to show Putin that they are serious about ensuring that Russia not invade Ukraine and not just talk about their worries.

“Deep concerns won’t stop Russian tanks,” Vitrenko said, adding that “panic hurts Ukraine economically and that’s what Putin wants.” Vitrenko argued that any economic weakness could make it easier for Russia to “overthrow the current government and install a puppet.”

Vitrenko’s big concern is that Russia’s state-owned Gazprom, which built the undersea Nord Stream 2 pipeline to Germany that bypasses Ukraine, will use oil as a financial weapon to hurt Ukraine.

“We want a level playing field and fair competition,” Vitrenko told Chatterley. “Putin wants Europe to be even more dependent on Russian gas supplies.” He said Europe should be concerned that if Russia abuses any energy dominance, “consumers will suffer.”

Nearly eight in 10 Americans worry inflation will get worse, according to a Gallup poll released Wednesday, underscoring the challenge facing the Federal Reserve and White House as they try to get inflation under control.

The poll, taken between January 3 and January 16, found that 79% of people predict inflation will go up over the next six months, including 50% who expect it will go up “a lot.” Just 9% anticipate the cost of living will go down a lot or a little.

A separate Gallup survey, taken January 3 to January 13, found that 49% of Americans say rising prices have caused hardship for their family, including 9% who cited “severe” hardship impacting their ability to maintain their standard of living. That’s up slightly from a November Gallup poll where 45% of Americans said rising prices caused hardship.

The findings are problematic for the Fed, which is in a race to cool inflation off by raising interest rates before it gets embedded in the economy.

Consumer prices soared by 7% in December from the year before, the fastest pace in 39 years.

More than three-quarters of Americans (78%) polled by Gallup expect interest rates will go up in the next six months. To fight inflation, the Fed has signaled it will hike interest rates three times this year.

It’s important to note that while consumers may be expecting inflation to get worse before it gets better, investors are not freaking out. Market-based measures of inflation expectations are not signaling alarm and have even cooled off recently. Many economists also anticipate inflation will ease later this year.

People walk by the New York Stock Exchange in the Financial District of New York City on January 26.

US stocks rallied at Wednesday’s opening bell. The big event of the day is the Federal Reserve’s policy update, due at 2pm ET.

While the central bank has been clear about its plans to roll back pandemic-era stimulus and raise interest rates this year. But thanks to persistently rising inflation, the market is expecting additional rate hikes. For today, investors may be hopeful that the Fed will ease off its hawkish tones from the last few meetings.

Traders work on the floor of the New York Stock Exchange at the opening bell on January 25.

The market has churned intensely this week as investors get to grips with expectations that the Federal Reserve will soon begin aggressively hiking interest rates in an effort to cap surging inflation.

What’s happening: Trading on Tuesday was another rollercoaster ride, with the S&P 500, Dow and Nasdaq Composite all finishing in the red.

Recent turbulence has sparked fears that the party on Wall Street could be ending as central banks, which have pumped unprecedented amounts of money into the economy during the pandemic, withdraw their support.

Investors now expect the Fed to hike interest rates four times this year (or more) if inflation continues apace. That’s encouraging them to dump stocks in companies that rely on borrowed cash, as well as the technology firms that have powered the recent bull market.

Still, many analysts think the sell-off has been too hasty. And historical data shows that while a shift in Fed policy often generates volatility, rate hike cycles are often good for stocks, not bad.

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How aggressive will America’s central bank be?

Investors will be looking for clues when chair Jerome Powell holds a press conference after the Fed’s meeting on Wednesday. Investors are not expecting the Fed to make a move this week. That’s more likely to happen in March.

It would be the first time the Fed has changed interest rates since slashing them to near zero at the beginning of the Covid-19 pandemic in March 2020. The central bank hasn’t hiked rates since December 2018.

Higher interest rates make it more expensive for most people and companies to borrow money. That, in turn, leads to a slowdown in consumer and business spending, which usually puts a lid on rising prices.

Most on Wall Street think the Fed will want to take a slow and steady approach to combating higher consumer prices. Raising rates too sharply could hurt the economy and lead to further turmoil in a suddenly skittish stock market.

But a small faction of traders believe the Fed will raise rates more aggressively. Investors are pricing in a 5% probability that the Fed will boost rates by a half-point. (The remaining 7% believe the Fed will sit tight.)

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Investors are hopeful the Fed could ease up on its hawkish rhetoric just a tad as the market tumbles and tensions escalate between Russia and Ukraine.

After a rough three weeks and a particularly rocky past two days, stocks were set for a strong comeback.