When Fed Discusses Callback Support, Stocks Drop, Yields Rise | Business
New York – U.S. stocks fell and bond yields rose on Wednesday after the Federal Reserve signaled it.
The S&P 500 fell 22.89 (0.5%) to 4,223.70 after the Fed released a set of forecasts that are eagerly awaited by policymakers. We started talking about the possibility of delaying monthly bond purchases to keep long-term interest rates low.
Ultra-low interest rates are one of the main sources of fuel for the stock market to break records, the latest of which will be announced on Monday. As a result, the immediate reaction of investors to the Fed’s comments was to lower stock prices and raise bond yields. The S&P 500 fell 1% in the afternoon. But the movement has eased, as Fed Chairman Jerome Powell said at a press conference.
The Dow Jones Industrial Average lost 265.66 points (0.8%) to 34,033.67, holding back the loss of 382 points shortly after the Fed’s announcement. The Nasdaq Composite fell 33.17 (0.2%) to 14,039.68, after falling 1.2% previously.
In the bond market, 10-year government bond yields fell from 1.50% Tuesday night to 1.55%. Two-year yields, closer to the Fed’s expectations, fell from 0.16% to 0.20%.
Nate Touft, managing director of Manulife Investment Management, said he had focused on forecasting inflation and economic growth after overcoming the surprises of several policymakers raising their rate hike forecasts. It was. It hasn’t changed much next year or in the long term.
“To me that means more confidence in their outlook, not that their outlook has changed,” Hooft said.
In the past, uncertainty about the economic recovery from the pandemic could have forced federal officials to further push back the timing of rate hikes. Central banks can now be more confident, as widespread immunizations are now helping the economy come out of its previous coma.
However, increasing the timing of rate hikes may also increase the point at which Fed bond purchases may slow.
At his press conference after the Federal Reserve’s announcement, Powell said it would be a bigger, near-term change for the market. He also said buying would continue until “further substantial progress” is seen until the economy is fully utilized and prices stabilize.
However, he admitted that conditions had improved enough to start a discussion about when to cut back on buying. “You can think of this meeting as a ‘meeting to talk’ to ‘talk’, he said.
Some investors are on the schedule in late August when the Federal Reserve Bank of Kansas City holds its annual symposium in Jackson Hall, Wyoming. This rally has been part of a big federal statement in the past, perhaps when Powell provides more advice on when to start the cut.
The recent spike in inflation has raised fears that the Fed will have to tune in to its support. Prices for the entire economy, including used cars and airline tickets, are skyrocketing and getting younger. For example, the consumer price index in May rose 5% year-on-year.
Federal policymakers on Wednesday raised inflation expectations this year. The Fed’s median inflation forecast is 3.4%, down from 2.4% in March.
However, the Fed considers the explosion to be only temporary as the economy overcomes supply shortages and other short-term factors. The median forecast shows that inflation will drop to 2.1% next year and 2.2% in 2023. This is a slight increase from the previous forecast of 2% in 2022 and 2%. 1% in 2023 in March.
For economic growth in 2022, the median forecast of policymakers was stable at 3.3%. In 2023, it fell from the previous forecast of 2.2% to 2.4%.
Within the S&P 500, four stocks fell on each rise. One of the biggest losses is due to Oracle. Oracle fell 5.6% after making investment plans that could reduce future profitability.
Furniture company La-Z-Boy fell 11.7% after warning investors how much it would make for every dollar sold if the price paid for raw materials increased significantly.
General Motors was one of the few winners. It rose 1.6% after announcing it would increase spending on electric and self-driving cars and add two battery factories in the United States.
When Fed Discusses Callback Support, Stocks Fall, Yields Rise | Business
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