Stocks struggle after the Fed eases up on rate hikes

Traders are seen working at the New York Stock Exchange while a screen displays Federal Reserve Chair Jerome Powell speaking during a news conference after a new interest rates hike was announced on December 14.

US stocks were whipsawed Wednesday. The market was solidly higher before the Federal Reserve announced an expected interest rate hike of half a percentage point.

But stocks gave up all their gains as investors focused on new forecasts from the Fed that showed slower economic growth and higher unemployment and inflation rates for 2023 than what the Fed predicted in September. The central bank also lifted its projections for how high interest rates may need to go before the end of next year.

The Dow fell more than 140 points, or 0.4%.

The S&P 500 lost 0.6%.

The Nasdaq Composite was down 0.8%.

As stocks settle after the trading day, levels might still change slightly.

The Fed confirmed Wednesday it may keep pushing rates higher next year — which means higher borrowing costs for consumers.

But it also means your savings may actually start earning a little money after years of barely-there interest.

“Online savings account and CD yields haven’t been this high since 2008,” said Greg McBride, chief financial analyst at Bankrate. 

There are many other ways to situate your money so that you can benefit from rising rates and protect yourself from their costs. 

Read more here.

Jerome Powell speaks during a news conference today in Washington, DC.

The Fed may not hike rates at the conclusion of each of its meetings next year. But don’t expect it to cut rates any any point, either.

“Our focus right now is really on moving our policy stance to one that’s restrictive enough to assure a return of inflation to 2% goal over time. It’s not on rate cuts,” Powell said. “And we think that we’ll have to maintain a restrictive stance of policy for some time. Historical experience caution strongly against prematurely loosening policy. I wouldn’t say we’re considering rate cuts.”

Fed Chair Jerome Powell, in response to a question from CNN’s Nicole Goodkind, said the Fed hopes to tackle high economic inequality by getting inflation under control.

“We want to get back to a long expansion where the labor market can remain strong over an extended period of time,” Powell said. “That’s a really good thing for workers in the economy and we’d love to get back to that. That’s what our goal is.”

Powell said the Covid pandemic put Americans and the economy through “a difficult time – I think much more difficult than we thought would happen.” So by bringing inflation lower through rate hikes, Powell said he hopes the Fed can return the economy and low-income Americans to prosperity.

Screens on the trading floor at New York Stock Exchange display the Federal Reserve Chair Jerome Powell during a news conference after the Federal Reserve announced interest rates will raise half a percentage point today.

The Fed thinks the US economy will continue to grow through its rate hike campaign, even though it expects America’s gross domestic product to slip and unemployment to rise.

“I don’t think it would qualify as a recession because you’ve got positive growth,” Powell said.

Investors have been worried that the Fed’s continued rate hikes could plunge the US economy into a recession. But the semantics of whether or not America is in a technical recession or not may not matter – especially to people who lose their job or companies whose profits are squeezed.

That’s not the expectation. But Powell also mentioned that recessions can be unpredictable, and the economy may yet fall into recession.

The Federal Reserve’s latest economic projections are calling for even higher levels of unemployment next year through 2025.

The Fed is now expecting the US jobless rate to grow to 4.6% next year, up from the current rate of 3.7%. Assuming no change in the size of the labor force, that would mean that about 1.5 million more people would be unemployed.

Still, Fed Chair Jerome Powell believes that the costs of higher unemployment could be eased by the very nature of the current job market and its “structural labor shortage,” where vacancies far exceed jobseekers and labor force participation hasn’t increased as anticipated.

“Generally, companies want to hold on to the workers they have, because it’s been very, very hard to hire,” Powell said. “You have all the vacancies far in excess of the number of employed people. It doesn’t sound like a labor market where a lot of people need to be out of work.”

He added: “So there are channels through which the labor market can come back into balance with relatively modest increases in unemployment.”

Federal Reserve Board Chairman Jerome Powell holding a news conference following the announcement that the Federal Reserve raised interest rates by half a percentage point, at the Federal Reserve Building in Washington, today.

Fed Chair Jerome Powell threw cold water on hopes that rates would come down anytime soon.

Even as the Fed slows its rate hikes, it’s not going to quickly lower them – even if the economy starts to slump. Inflation, Powell says, is the enemy the Fed has its sights on.

“Ultimately, that question about how high to raise rates is one we’d make looking at progress on inflation and where financial conditions are and making assessment of whether policy is restrictive enough,” Powell said. “We have an assessment that we’re not as restrictive enough even with today’s move.”

Powell said the Fed won’t cut rates until inflation falls to 2% “in a sustained way.”

“At a certain point though, we’ll get to that point and then the question will be how long do we stay there. And the strong view of the committee is we’d need to stay there until we’re really confident that inflation is coming down in a sustained way. And we think that will be some time.”

Why did stocks tumble after the Fed did pretty much exactly what the market thought it would? It’s not about today’s rate hike, according to one investment strategist. It’s because the Fed signaled in its economic projections that more rate increases are coming than investors anticipated due to persistent inflation…which isn’t falling as quickly as hoped.

The Fed is expecting that core PCE inflation, a key measure of consumer prices preferred by the Fed and many economists, will rise 3.5% in 2023. That’s up from a September projection of 3.1%.

Andrzej Skiba, head of US fixed income at BlueBay Asset Management, said the market was hoping that core PCE growth would be closer to a level beginning with a 2 instead of a 3 by the end of next year.

“That could have given the Fed reason to cut rates in back end of 2023 if a recession is coming,” Skiba said, adding that rate cuts are probably now not in the cards until 2024.

Skiba noted that investors also were disappointed by the fact that the Fed is now saying that interest rates could end next year at 5.1%…higher than the 4.6% projection in September.

The pace of Federal Reserve rate hikes may be slowing, but “the hard work is still ahead” for the central bank as it tries to bring down inflation with minimal economic pain, said Greg McBride, chief financial analyst for Bankrate.

“The Fed is confident they can push interest rates above 5% without unemployment rising above 5%, despite scant economic growth in 2023. Optimistic? Every football coach says on Friday they’re going to win that weekend – even though we know half of them will lose,” McBride said in a statement.

It has been easy — and necessary — for the Fed to be aggressive in 2022, given the historically low unemployment rate and decades high inflation, McBride noted.

That path will get more challenging in 2023, he added.

“It gets a lot tougher to raise rates once the economy slows, unemployment rises, and inflation remains stubbornly high,” he said. “Happy New Year, Mr. Powell!”

Jerome Powell during a press conference today.

The Fed raised rates to a target range of 4.25% to 4.5% Wednesday. It’s not done.

By the end of next year, the Fed expects its target rate will be around 5.1%, according to the median estimate of Fed economists. That aligns with Fed Chair Jerome Powell’s statement Wednesday and over the past month that “we still have some ways to go.”

Traders work on the trading floor at the New York Stock Exchange on December 14.

The Federal Reserve did exactly what the market was expecting. It raised interest rates by a half-point to a range of 4.25% to 4.5%. Stocks were solidly higher all day before the Fed announcement. But investors then sold the news.

Traders may be disappointed by the fact that the Fed is also sounding more negative about the economy. The central bank’s new economic forecasts call for slower growth in gross domestic product (GDP) next year…just 0.5%. The Fed also lifted its forecasts for both the unemployment rate and inflation. Can you say stagflation?

Making matters worse? The Fed clearly isn’t done raising rates yet. The so-called dot plots show that central bankers have a median forecast of 5.1% for its fed funds rate at the end of 2023.

The Dow fell nearly 100 points, or 0.3%, after the Fed announcement.

The S&P 500 slipped 0.4%.

The Nasdaq Composite was down 0.6%.

The Marriner S. Eccles Federal Reserve Board Building seen on September 19 in Washington, DC.

The Fed expects America’s economy to cool off even more than it previously thought next year as it plans to continue its rate hike campaign for the long haul.

After raising rates to the highest level in 15 years, the Fed said Wednesday it forecast US gross domestic product, the broadest measure of America’s economy, to grow just half a percentage point in 2023. In its previous forecast in September, Fed economists thought the economy would expand by 1.2%.

Joblessness will grow next year too, Fed officials forecast, with the unemployment rate rising to 4.6% by the end of 2023, up from the current rate of 3.7%. In September, the Fed had predicted the unemployment rate next year would grow to just 4.4%.

The prolonged period of rate hikes will help to cool inflation – just not as quickly as the Fed had previously thought. The central bank now expects prices to rise 5.6% this year, up from 5.4% in its previous forecast. And prices will grow 3.1% next year, higher than its previous forecast of 2.8%.

The Federal Reserve approved a half-point interest rate hike on Wednesday, a smaller increase than in recent months and an acknowledgment that inflation is finally easing.

The increase marks a shift for the central bank after an unprecedented year that includes seven-straight rate hikes as part of an aggressive campaign to try and bring down the highest inflation since the early 1980s.

While lower than the four consecutive three-quarter-point hikes approved at the Fed’s previous meetings, Wednesday’s rate hike is still twice the size of the central bank’s customary quarter-point increase and will likely deepen the economic pain for millions of American businesses and households by pushing up the cost of borrowing even further.

Wall Street is clearly excited about the likelihood of a smaller rate hike. Stocks were solidly higher Wednesday afternoon with less than an hour to go before the Federal Reserve is expected to raise rates by just a half-point. (Traders are pricing in a nearly 80% chance of a so-called 50 basis point hike.)

The major market indexes were near their highest levels of the day. The hope is that the Fed’s economic forecasts and dot plot projections for interest rates continue to suggest that inflation is peaking and that the Fed will slow the pace and size of future rate hikes.

But there are risks. Fed chair Jerome Powell could spook investors if he continues to sound overly worried about inflation. And investors could express concerns if the Fed indicates that the economy may be slowing more dramatically than feared and that the unemployment rate may rise more than expected.

The Dow was up more than 200 points, or 0.6%, in midday trading.

The S&P 500 also gained 0.6%.

The Nasdaq Composite rose 0.5%.

An aerial view of shipping containers, trucks and train cars at the Port of Oakland, California, in October.

White House officials would be first to admit that the historically high inflation that has been plaguing the US has been stubbornly persistent and frustratingly unrelenting. 

Last year, top officials, including President Joe Biden himself and Treasury Secretary Janet Yellen, had predicted that the high prices would be short-lived – a prediction that was proven wrong and that the administration has had to walk back. 

Even as there have been clear signs in recent weeks that inflation appears to be moderating, White House officials continue to stress that it remains a serious problem – and caution that unforeseen events could always prompt things to take a turn for the worse. It has also confronted criticism, including from Republican members, that the American Rescue Plan and other spending have helped fuel inflation even further.  

Still, the White House is eager to point to actions the administration has taken that they argue have, in the broader picture, contributed to alleviating historically high prices. 

Chief among them is the administration’s work on addressing supply chain issues. The administration created an interagency supply chain task force, including a so called “Port Envoy,” to try to untangle some of the major blockages in the country’s most important supply chain arteries. Officials argue that when consumer goods are able to keep moving, that means higher availability of products and ultimately, lower prices. 

Biden has also pointed to his decision to aggressively release oil from the Strategic Petroleum Reserve as having helped to lower prices at the gas pump. It’s difficult to say just how much the SPR releases ultimately affected prices directly – these releases are not meant to have dramatic, overnight impact – but experts say those actions likely did contribute to countering soaring global energy prices resulting from, in part, the war in Ukraine. 

The White House will also credit some executive actions that Biden has taken – for example, to make hearing aids available for purchase over-the-counter and far less expensive and accessible – for helping relieve pressure in narrower ways for everyday consumers. 

On the legislative front, the eventual implementation of the so-called “Inflation Reduction Act” will offer Americans more breathing room, White House officials say – though experts very much disagree on how much of an effect that massive climate, health care and tax package, will actually have on inflation itself. 

Officials have been watching the central bank and its historic interest rate hikes like everyone else. But they are quick to point out that unlike the previous administration, Biden has emphasized the importance of recognizing the Federal Reserve’s independence – and allowing the central bank to do what it needs to do to try to bring inflation down.

The Securities and Exchange Commission has charged seven Twitter users and a podcaster in an alleged $100 million stock manipulation scheme run through social media, the agency said Wednesday.

According to the SEC, the seven Twitter users also used the messaging app Discord to promote certain stocks to “hundreds of thousands of followers,” and then quietly sold their positions after a run-up in the stocks’ prices.

The alleged scheme dated back to at least January 2020 and involved a nationwide network of participants, including four of the defendants who reside in Texas; two in California; one in New Jersey and one in Florida.

Read more

Traders work on the floor of the New York Stock Exchange on December 13.

US stocks barely budged in early trading Wednesday. Wall Street is eagerly awaiting the news from the Federal Reserve at 2 p.m. ET.

The Fed is widely expected to raise interest rates again, but by just a half-point following four straight hikes of three-quarters of a point. The market will also be watching for signs of what’s next from the Fed.

The central bank also releases its latest economic projections, including its dot plot of interest rate forecasts. Fed Chair Jerome Powell will also hold a press conference at 2:30 p.m. ET.

The Dow rose about 50 points, or 0.2%.

The S&P 500 inched up 0.1%.

The Nasdaq Composite dipped 0.1%.

At the end of the Federal Reserve’s two-day meeting today, the central bank will release its economic outlook. That forecast, which is updated four times a year, includes a chart that plots out an array of dots, showing where each of the Fed’s 19 leaders expect interest rates to go in the future.

Former Fed chair Ben Bernanke first created the dot plot in 2012, mostly as a way to assure the public that Fed leaders planned to keep interest rates low for the time being. 

Now, the opposite is true: The dots have become a signal that interest rates will remain elevated into the future — spooking investors and Fed watchers alike.

The problem is that it’s difficult to predict what the future actually holds. As economic data changes, so do Fed projections.

Federal Reserve Chair Jerome Powell warned last year that “the dots are not a great forecaster of future rate moves,” and that they should be taken “with a big, big grain of salt.” 

But that doesn’t stop investors from reading into them.

Back in December 2021, the Fed was only expecting rates to finish this year at about 0.9%. Goldman Sachs analysts said this week they expect the median “dot” to rise to a new peak in federal fund rates of 5%-5.25%, up from 4.5%-4.75% in September.

That would mean Fed officials expect to raise rates by half a percent more than they did three months ago, when the plot was last released.

Delta Airlines passenger jets are pictured outside the newly completed Delta Airlines Terminal C at LaGuardia Airport in New York City, in June.

Delta Air Lines raised its guidance for fourth-quarter revenue and said it expects profits to grow even more in 2023 and 2024.

The Atlanta-based airline raised its fourth-quarter guidance to between $1.35 to $1.40 a share, up from its earlier guidance of $1 to $1.25. Analysts surveyed by Refinitiv had a consensus earnings-per-share forecast of $1.15.

The company also raised its fourth-quarter revenue target and said its profit margin should be at the top end of its earlier guidance.

“Demand for air travel remains robust as we exit the year and Delta’s momentum is building,” said Delta CEO Ed Bastian.

The new guidance would give Delta full-year earnings of between $3.07 to $3.12 per share. It said it expects 2023 earnings of between $5 to $6 per share, and 2024 to top $7.

The more bullish profit guidance comes even as Delta recently reached a tentative labor agreement with its pilots that would grant them a 34% raise, including backpay, over the next three years. The pilots are the only major employee group at Delta to have union representation, unlike most other airlines that are more broadly unionized.

Shares of Delta jumped nearly 5% in premarket trading on the guidance, and it also lifted the shares of other major airlines about 1%. Shares of Delta are still down for the year, as are most US airline stocks.

US stock futures were flat ahead of the Fed’s last rate hike decision of the year. Investors have cheered expectations that the Fed will raise rates by only a half point, but fear higher rates in the long run that could send the economy into a recession. 

Dow futures were up 20 points, or 0.1%. S&P 500 futures were flat, and Nasdaq Composite futures were also unchanged. 

Fear & Greed Index: 61 = Greed

Oil & gas: US oil rose 0.9% to just over $76 a barrel. Average US gas prices fell to $3.21 a gallon.