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Wall Street slumps as investors absorb hawkish Fed rate message

Economy Sep 21, 2022 06:36PM ET
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By David French

(Reuters) - Wall Street's main indexes see-sawed before slumping in the final 30 minutes of trading to end Wednesday lower, as investors digested another supersized Federal Reserve hike and its commitment to keep up increases into 2023 to fight inflation.

All three benchmarks finished more than 1.7% down, with the Dow posting its lowest close since June 17, with the Nasdaq and S&P 500, respectively, at their lowest point since July 1, and June 30.

At the end of its two-day meeting, the Fed lifted its policy rate by 75 basis points for the third time to a 3.00-3.25% range. Most market participants had expected such an increase, with only a 21% chance of a 100 bps rate hike seen prior to the announcement.

However, policymakers also signaled more large increases to come in new projections showing its policy rate rising to 4.40% by the end of this year before topping out at 4.60% in 2023. This is up from projections in June of 3.4% and 3.8% respectively.

Rate cuts are not foreseen until 2024, the central bank added, dashing any outstanding investor hopes that the Fed foresaw getting inflation under control in the near term. The Fed's preferred measure of inflation is now seen slowly returning to its 2% target in 2025.

In his press conference, Fed Chair Jerome Powell said U.S. central bank officials are "strongly resolved" to bring down inflation from the highest levels in four decades and "will keep at it until the job is done," a process he repeated would not come without pain.

"Chairman Powell delivered a sobering message. He stated that no one knows if there will be a recession or how severe, and that achieving a soft landing was always difficult," said Yung-Yu Ma, chief investment strategist at BMO Wealth Management.

Higher rates and the battle against inflation was also feeding through into the U.S. economy, with the Fed's projections showing year-end growth of just 0.2% this year, rising to 1.2% in 2023.

"Markets were already braced for some hawkishness, based on inflation reports and recent governor comments," said BMO's Ma.

"But it's always interesting to see how the market reacts to the messaging. Hawkishness was to be expected, but while some in the market take comfort from that, others take the position to sell."

The Dow Jones Industrial Average fell 522.45 points, or 1.7%, to 30,183.78, the S&P 500 lost 66 points, or 1.71%, to 3,789.93 and the Nasdaq Composite dropped 204.86 points, or 1.79%, to 11,220.19.

All 11 S&P sectors finished lower, led by declines of more than 2.3% by Consumer Discretionary and Communication Services.

Volume on U.S. exchanges was 11.03 billion shares, compared with the 10.79 billion average for the full session over the last 20 trading days.

The S&P 500 posted two new 52-week highs and 70 new lows; the Nasdaq Composite recorded 44 new highs and 446 new lows.

Wall Street slumps as investors absorb hawkish Fed rate message
 

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Comments (25)
Matt Kay
Matt Kay Sep 21, 2022 6:16PM ET
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free market controlled by one man....
Tony Hall
Tony Hall Sep 21, 2022 6:16PM ET
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Truth of the matter is that he has to correct all the corruption from wallstreet and corporate america just like 2008. We the little guy will have to pay the price just like before. Once you understand the game, you will make money up or down.
Marco cuevas
Marco cuevas Sep 21, 2022 3:31PM ET
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LOL the US stock market is a circus and big money pulling strings in the background with journalism....its going red before close WHAT A JOKE!
Shabbir Khan
Shabbir Khan Sep 21, 2022 3:21PM ET
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Next time 100 bps..
Paul Keyton
Paul Keyton Sep 21, 2022 3:09PM ET
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Remember Remember the 8Th of November V
Nilesh Patade
Nilesh Patade Sep 21, 2022 3:09PM ET
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what is on 8th Nov ?
Nilesh Patade
Nilesh Patade Sep 21, 2022 3:09PM ET
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what is on 8th Nov ?
Angie Shiian
Angie Shiian Sep 21, 2022 3:09PM ET
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5th of November maybe?
Paul Keyton
Paul Keyton Sep 21, 2022 3:06PM ET
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Biden and Dems have got to go!!
Peter O Neill
Peter O Neill Sep 21, 2022 3:06PM ET
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What does the Fed have to do with the election? The fed is apolitical and makes its own impartial decisions.
Stephen Fa
Stephen Fa Sep 21, 2022 3:06PM ET
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The Fed monetary policy is reacting to Dems fiscal policies and inflation it's causing.
Geonho Lee
Geonho Lee Sep 21, 2022 2:25PM ET
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just use long stradle/strangle
First Last
First Last Sep 21, 2022 2:25PM ET
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SPY now is near opening price
Geonho Lee
Geonho Lee Sep 21, 2022 2:25PM ET
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just use long stradle/strangle
Vikram Modi
Vikram Modi Sep 21, 2022 2:20PM ET
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why market is falling,it is already expected
Suman Chakraborty
Suman Chakraborty Sep 21, 2022 2:20PM ET
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absolutely
Gustavo Gomez
Gustavo Gomez Sep 21, 2022 2:20PM ET
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Because the end game is now higher
Vikram Modi
Vikram Modi Sep 21, 2022 2:20PM ET
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why market is falling,it is already expected
H m Anar
H m Anar Sep 21, 2022 1:48PM ET
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God. if fed increase rate market will be up or down. just tell me . that's enough
SujayKumar Ku
SujayKumar Ku Sep 21, 2022 1:48PM ET
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All know that fed will increase the rate, so when all are prepared just some drama happens. My opinion is market will go up. Let is see
Juan Aguirre
Juan Aguirre Sep 21, 2022 1:48PM ET
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I believe it will go down, it always does when they raise interest
Casador Del Oso
Casador Del Oso Sep 21, 2022 1:48PM ET
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In the short-term market will go up and down. In the longer-term this will occur in a descending channel until the bear market hits bottom.
jeff fuhrman
jeff fuhrman Sep 21, 2022 1:48PM ET
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That's actually completely wrong. Do you homework. smfh.
 
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