- US stocks gave up steep gains on Wednesday after the Fed gave surprisingly hawkish signals on the path of rate hikes this year.
- Fed Chair Jerome Powell admitted that a rate hike in every FOMC meeting is not off the table.
- He also warned there's a risk inflation will stay higher for longer, adding to pressure on the Fed to take aggressive steps.
- Sign up here for our daily newsletter, 10 Things Before the Opening Bell.
US stocks reversed their earlier gains to close mixed on Wednesday, after the Federal Reserve sent surprisingly hawkish indications on rate hikes this year to tame red-hot inflation.
The central bank's policy statement opened the door for the Fed to start raising the benchmark rate as early as March. The S&P 500, Nasdaq and Dow Jones Industrial Average, which jumped more than 500 points right immediately after the meeting, maintained steep gains.
But in the press conference that followed, Chair Jerome Powell acknowledged that inflation may stay high for longer than expected and admitted that a rate hike in every Fed meeting is not off the table. Stocks then turned negative, though the Nasdaq finished flat.
Here's where US indexes stood after the 4:00 p.m. ET close on Wednesday:
- S&P 500: 4,349.93, down 0.15%
- Dow Jones Industrial Average: 34,168.09, down 0.38% (129.64 points)
- Nasdaq Composite: 13,542.12, up 0.02%
The 10-year Treasury yield rose to 1.848% from Tuesday's 1.782%. Bond yields move inversely to prices.
"While offering some clarity on how the Fed would begin the process of removing policy accommodation, the outcome of the meeting fell short in providing the needed guidance," Charlie Ripley, senior investment strategist for Allianz Investment Management, said in a note. "Perhaps this was intentional ... but time will not be a luxury for the Fed should inflationary pressures persist."
For Jason Pride, CIO of Private Wealth at Glenmede, the central bank could raise rates by a quarter-point in March, followed by three or more for the remainder of 2022.
"Along the way, the considerable uncertainty of the inflation outlook is a wildcard that could influence the Fed's path forward on rates," Pride said in a note Wednesday. "Markets appear to have already digested a four rate hike regimen for 2022 via fed funds futures."
The whiplash in US equities this week began with jitters that a Fed determined to curb inflation will turn aggressively hawkish. That included worries the central bank may start to shrink its nearly $9 trillion balance sheet — more commonly known as quantitative tightening.
Adding to the market swings is also a cascade of earnings reports from mega-cap companies due this week. Tesla will report after the closing bell Wednesday, while Apple will post results on Thursday.
Outside the US, investors are keeping an eye on the simmering geopolitical tensions between Russia and Ukraine, which is impacting different commodities including oil and precious metals.
West Texas Intermediate crude oil rose as much as 1.29% to $86.70 per barrel. Brent crude, oil's international benchmark, jumped as much as 1.29% to $89.34 per barrel.
Gold dipped by 1.69% to $1,818.42 per ounce.