Wall Street Falls After Fed Chair’s Messages Indicating No Rate Cuts This Year

On Wall Street, stock prices fell on Wednesday following the increase in interest rates by the U.S. central bank and the message from its chairman Jerome Powell that he does not expect rate cuts this year.

The Dow Jones slipped 1.63 percent to 32,030 points, while the S&P 500 fell 1.65 percent to 3,936 points, and the Nasdaq index dropped 1.60 percent to 11,669 points.

As expected, Fed leaders decided to raise key interest rates by 0.25 percentage points during a two-day meeting, to a range of 4.75 to 5 percent.

This marks the ninth increase in interest rates since the Fed began tightening monetary policy in March last year, although the pace of increases has slowed.

In the central bank’s statement, it signaled that due to problems in some banks, a pause in rate increases may be possible, but that further adjustments to monetary policy will likely be necessary due to high inflation.

After the Fed’s announcement, stock indices initially rose, but sharply fell following the central bank chairman’s messages.

– The market was encouraged by the Fed’s message that a pause in rate increases is possible, but Powell disappointed it by stating that the Fed’s hands are not tied and that it will be able to raise rates further if necessary – explains Chris Zaccarelli, director at Independent Advisor Alliance.

Powell did indicate at the press conference that the process of raising rates is nearing its end, but that the fight against inflation is not over yet.

– There is still a long way to go in the process of bringing inflation back to 2 percent, and it will likely be uneven – Powell said, adding that the baseline scenario does not include rate cuts this year.

This disappointed investors who expected the Fed to soon conclude the rate hike process and begin the rate cut process by the end of the year.

Powell also stated that the banking system is healthy, but that problems in some banks will lead to tightening financing conditions.

And tightening financing conditions means that there will be a reduction in lending and consumption, which will slow economic growth, analysts explain.

After two days of growth, the S&P bank sector index fell more than 3.5 percent yesterday as several regional and local banks, including First Republic, remain under pressure due to depositor distrust.

Additionally, Treasury Secretary Janet Yellen stated in a report to Congress that a government guarantee for all bank deposits is not being considered.

This disappointed investors who hoped that due to the banking crisis, the government would decide to guarantee all deposits, not just those up to $250,000.

Meanwhile, European stock prices rose yesterday. The London FTSE index strengthened by 0.41 percent to 7,556 points, while the Frankfurt DAX rose by 0.14 percent to 15,216 points, and the Paris CAC increased by 0.26 percent to 7,131 points.