The Dow Jones Industrial average fell Wednesday after the Federal Reserve announced a widely-anticipated quarter-point rate hike and said it expects “ongoing” increases.
Losses were kept in check as the central bank also gave some small hints of dialing back its tightening at some point. It said in its latest statement that inflation has “eased somewhat.”
The Dow Jones Industrial Average shed 327 points, or 1%. The S&P 500 was down 0.4%. The Nasdaq Composite was about flat, boosted by gains in chipmakers after strong Advanced Micro Devices earnings.
The Fed took rates to the highest levels since October 2007 and kept language in its post-meeting statement that “ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.”
But the Fed also said in determining the “extent” of futures increases, it would take into account the cumulative tightening so far.
Investors will closely follow comments from Chair Jerome Powell that come after the Fed announcement. Some recent indicators that inflation is easing in the broader economy have investors hoping for an easier tone from the Fed chief. On Tuesday, the employment cost index, a measure of wage increases, showed compensation rose 1% in the fourth quarter, down from 1.2% in the third quarter.
Still, traders may be getting ahead of themselves looking for signs that a pause in hikes or even a pivot is coming soon.
“I see no signs yet that the Fed is open to 2023 rate cuts,” said Bill Zox, portfolio manager at Brandywine Global. “I’m not sure the Fed is even trying for a soft landing. While they would never say so, they might prefer the restorative aspects of a recession and a proper bear market.”
Fourth quarter corporate earnings continued to show resilient profits. Peloton shares surged more than 17% after the fitness equipment company said its net loss narrowed year over year. Advanced Micro Devices shares gained more than 8% after the semiconductor company reported a fourth-quarter earnings beat. Meanwhile, Snap shares dropped more than 13% after the social media company posted a disappointing quarterly revenue.
Wall Street is coming off a strong session to end January. The S&P 500 capped its best January performance since 2019, while the tech-heavy Nasdaq Composite notched its strongest January in 22 years.
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