U.S. stocks closed lower in volatile trading on Wednesday following a policy announcement by the Federal Reserve that raised interest rates by an expected 50 basis points, but its economic projections see higher rates for a longer period.
The central bank raised interest rates by half a percentage point on Wednesday and projected at least an additional 75 basis points of increases in borrowing costs by the end of 2023, as well as a rise in unemployment and a near-stalling of economic growth.
The Fed’s latest quarterly summary of economic projections shows U.S. central bankers see the policy rate, now in the 4.25%-to-4.5% range, at 5.1% by the end of next year, according to the median estimate of all 19 Fed policymakers, up from the 4.6% view at the end of September.
In comments after the statement, Fed Chair Jerome Powell said it was too soon to talk about cutting rates as the focus is on making the policy stance restrictive enough to push inflation down to the central bank’s 2% goal.
Economic data on Tuesday which showed cooling consumer inflation for November had heightened expectations a move by the Fed to stop rate hikes might be on the horizon next year.
“They may be using these sort of very aggressive dot plot forecasts to take any steam out of the easing that has gone on in the last couple of months,” said Rhys Williams, chief strategist at Spouting Rock Asset Management in Bryn Mawr, Pennsylvania.
“Conditions have eased, and that is their way of jawboning they are not going to let any easing really happen until they see unemployment go up.”
According to preliminary data, the S&P 500 (.SPX) lost 24.66 points, or 0.61%, to end at 3,994.99 points, while the Nasdaq Composite (.IXIC) lost 86.14 points, or 0.77%, to 11,170.67. The Dow Jones Industrial Average (.DJI) fell 149.08 points, or 0.44%, to 33,959.56.
The strategy of aggressive interest rate increases by major central banks around the world this year has increased worries the global economy could be pushed into a recession and weighed heavily on riskier assets such as equities this year.
Each of the three major averages on Wall Street are on track for their first yearly decline since 2018, and their biggest yearly percentage decline since the financial crisis of 2008.
Tesla Inc (TSLA.O) slipped after a Goldman Sachs analyst trimmed the price target for the electric-vehicle maker’s stock.
Charter Communications Inc (CHTR.O) tumbled as brokerages cut their price targets following the telecom services firm’s mega-spending plans for a higher-speed internet upgrade.