US Stocks Lower, Yields Higher on Fed 06/16 15:53
U.S. stocks fell and bond yields climbed Wednesday after the Federal Reserve
signaled it may start easing off the accelerator on its massive support for the
economy earlier than previously thought.
NEW YORK (AP) -- U.S. stocks fell and bond yields climbed Wednesday after
the Federal Reserve signaled it may start easing off the accelerator on its
massive support for the economy earlier than previously thought.
The S&P 500 fell 22.89, or 0.5%, to 4,223.70 after the Fed unveiled a highly
anticipated set of projections by its policymakers, which showed some expect
short-term rates to rise half a percentage point by late 2023. The Fed's chair
also said it has begun talking about the possibility of slowing down the bond
purchases it makes every month to keep longer-term rates low.
Super-low interest rates have been one of the main sources of fuel for the
stock market's rocket ride to records, with the most recent coming on Monday.
That's why the immediate reaction for investors to the Fed's comments was to
send stocks lower and bond yields higher, and the S&P 500 lost as much as 1% in
the afternoon. But the moves moderated as the Fed's chair, Jerome Powell, said
in a press conference that any changes are likely still a ways away.
The Dow Jones Industrial Average fell 265.66 points, or 0.8%, to 34,033.67,
paring a loss that hit 382 points shortly after the Fed's announcement. The
Nasdaq composite fell 33.17, or 0.2%, to 14,039.68 after earlier being down
In the bond market, the yield on the 10-year Treasury climbed to 1.55% from
1.50% late Tuesday. The two-year yield, which moves more closely with
expectations for Fed policy, rose to 0.20% from 0.16%.
After getting over the surprise of seeing several policymakers move up
forecasts for raising rates, Nate Thooft, senior managing director at Manulife
Investment Management, said that his focus turned to their projections for
inflation and the economy's growth. Neither changed much for next year or for
the long term.
"To me, that says the confidence level they have in their outlook is higher,
not that their outlook has changed," Thooft said.
Before, uncertainty about the economy's recovery from the pandemic may have
forced Fed officials to push the timeline for rate hikes further into the
future. Now, with widespread vaccinations helping to send the economy roaring
out of its prior coma, the central bank may be feeling more confident.
But moving up the timeline for rate hikes probably also moves up the timing
for a potential slowdown in the Fed's bond purchases.
In his press conference following the Fed's announcement, Powell said that
would be the bigger near-term change for markets. He said again that the
purchases will continue until "substantial further progress has been made" in
getting the economy to full employment and prices to be stable.
But he acknowledged that conditions have improved enough to start discussing
when to taper the purchases. "You can think about this meeting as the 'talking
about talking about' meeting," he said.
That has some investors circling late August on the calendar, when the
Federal Reserve Bank of Kansas City will host its annual symposium in Jackson
Hole, Wyoming. That gathering has been the setting for big Fed pronouncements
in the past, and maybe that's when Powell will offer more guidance about when
the taper will begin.
A recent burst of inflation had raised concerns that the Fed will have to
tighten the spigot on its support. Prices are leaping for used cars, airfares
and other things across the economy as it hurtles back to life. The consumer
price index surged 5% in May from a year earlier, for example.
Fed policymakers on Wednesday raised their expectations for inflation this
year. The median projection for the Fed's preferred measure of inflation was
for 3.4%, up from 2.4% in March.
But the Fed still sees the burst being only temporary as the economy works
its way through supply shortages and other short-term factors. The median
projection sees inflation dropping to 2.1% next year and 2.2% in 2023. That's
up only slightly from their earlier projection of 2% for 2022 and 2.1% for
2023, made in March.
For economic growth in 2022, the median projection for policymakers held
steady at 3.3%. For 2023, it rose to 2.4% from an earlier projection of 2.2%.
Within the S&P 500, four stocks fell for every one that rose. One of the
biggest losses came from Oracle, which fell 5.6% after it laid out investment
plans that could drag on its upcoming profitability.
Furniture company La-Z-Boy fell 11.7% after warning investors that
dramatically higher prices it's paying for raw materials will drag down how
much profit it makes from every $1 of sales.
General Motors was among the few gainers. It rose 1.6% after saying it will
raise spending on electric and autonomous vehicles and add two U.S. battery