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Stocks slide, yields jump as Fed projects earlier rate hikes

EconomyJun 16, 2021 05:03PM ET
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2/2 © Reuters. FILE PHOTO: Passersby wearing protective masks walk past an electronic board showing Japan's Nikkei average, the exchange rate between Japanese yen against the U.S. dollar and other world's benchmarks outside a brokerage, amid the coronavirus disease (CO 2/2

By Pete Schroeder

WASHINGTON (Reuters) - Markets were jostled Wednesday after U.S. Federal Reserve officials projected interest rate hikes sooner than expected, with stocks sliding and the dollar jumping on the news.

All three major U.S. indices fell following the afternoon announcement, as investors digested the possibility that interest rates could begin climbing sooner as Fed officials cited an improved economic outlook.

At the conclusion of its two-day policy meeting, the Fed disclosed that 11 out of 18 officials were projecting at least two quarter-point interest rate increases in 2023, as Fed Chairman Jerome Powell insisted at a press conference that the U.S. economy is well positioned coming out of the pandemic. The Fed said monetary support will remain until "substantial further progress" is seen on employment and inflation.

"The central case growth and inflation expectations for the next couple of years have not changed by much since March, but there is an explicit recognition that the vaccination program has reduced the risks to the economy from the health crisis," said Brian Coulton, chief economist at Fitch Ratings.

Investors had been fixated on the new Fed statement all week, as it was the first policy update from the central bank since fresh economic data showed job growth slowing and inflation on the rise. New projections from Fed officials showed an uptick in projection inflation in the near term, but the Fed did not indicate any significant rethinking of its approach, said analysts.

"Clearly expectations for the Fed to flinch were grossly overblown—a unanimous vote clearly shows they’re all on the same page with the current state of the economy, and importantly they’ve essentially doubled down on their view that inflation is transitory, albeit at a higher rate than last time they met," said Mike Loewengart, managing director of investment strategy for E*Trade Financial (NASDAQ:ETFC). "But what happens next year becomes more of a question mark."

Markets dipped immediately following the statement, but recovered from session lows as investors digested the news.

The MSCI world equity index, which tracks shares in 45 nations, fell 2.39 points or 0.33%. The Dow Jones Industrial Average fell 265.66 points, or 0.77%, the S&P 500 lost 22.89 points, or 0.54%, and the Nasdaq Composite dropped 33.17 points, or 0.24%.

TREASURIES, DOLLAR SURGE

The prospect of higher rates was felt in Treasury bonds and the dollar, which both jumped following the Fed statement.

The benchmark 10-year yield rose to its highest level since June 4 at 1.594%. It was last up 7.5 basis points at 1.5737%.

The five-year yield had its biggest one-day move since February, climbing to its highest level since April 6 at 0.913%.

The dollar index =USD, which tracks the greenback against six major currencies, was up 0.63% at 91.103, its highest since May 6.

Safe-haven gold prices took a hit on the Fed news, with spot gold falling 1.6% to $1,829.16 per ounce. U.S. gold futures settled up 0.3% at $1,861.40.

Oil prices posted gains for the fifth straight day on an anticipated surge in demand alongside falling crude inventories. Brent crude gained 40 cents, or 0.5%, to hit $74.39 a barrel, reaching its highest since April 2019, and running its gains to five straight days. U.S. crude rose 3 cents to $72.15, after reaching $72.99, highest since October 2018.

Stocks slide, yields jump as Fed projects earlier rate hikes
 

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Comments (8)
Alex Barabas
AlexB34 Jun 16, 2021 11:25PM ET
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After they destroy the middle and low class with inflation, they’re expected to learn their lesson.
YC Teng
YC Teng Jun 16, 2021 9:24PM ET
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Yes Jokers... Fact of life and history Always repeats itself!
Jokers R Us
Jokers R Us Jun 16, 2021 3:40PM ET
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So when markets are even more leveraged in 2023 the Fed is going to raise rates lol. I don’t think so.
Kamala Thakur
Kamala Thakur Jun 16, 2021 12:15PM ET
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sell now you don't expect it will go upstairs. inflation should be impact on this spike and future demand decrease 2-3 months. and US import also decreed.
Ajay Mathur
Ajay Mathur Jun 16, 2021 11:11AM ET
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Chris Sundo
Chris Sundo Jun 16, 2021 6:15AM ET
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This is the most falsified market of all time, AT ALL TIME HEIGHTS, based on what please? a bucket of smoke and mirrors. Where should the market go from here? -- Ridiculous! Jerome, be a man and clean this place up. You can't act like a wimp the rest of your life?
perplexed76 .
perplexed76 . Jun 16, 2021 3:07AM ET
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no demand, gamblers of all kind refuse to belive it
John McFarliniii
John McFarliniii Jun 16, 2021 1:24AM ET
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Buy Credit Default Swaps.
Chris Sundo
Chris Sundo Jun 16, 2021 1:24AM ET
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What would that do? Can you please elaborate? Your explanation would really help in putting the last 13 years into better view. TIA - Thanks In Advance.
 
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