NEW YORK (AP) — Stocks are swinging on Wall Street Wednesday after the Federal Reserve hinted it may raise interest rates two more times this year, even if it’s holding rates steady for now.
The S&P 500 was virtually unchanged in afternoon trading after pinballing from a modest gain before the Fed’s announcement to a modest loss just after. The Dow Jones Industrial Average was down 247 points, or 0.7%, at 33,964, as of 3 p.m. Eastern time, while the Nasdaq composite was 0.2% higher.
The Fed closed its latest policy meeting by saying it would hold rates steady, to give more time to see how its fusillade of rate hikes over the last 15 months is affecting the economy. It’s attempting the excruciating balancing act of slowing the economy just enough through rate increases to snuff out high inflation, but not so much as to break the job market and create a recession.
Standing pat would give the economy more time to absorb all the past rate hikes, and Fed Chair Jerome Powell said “ideally by taking a little more time, we won't go well past the level where we need to go.” That would provide some breathing room for the economy and financial markets.
But at the same time, the majority of Fed policy makers also indicated Wednesday they expect its main interest rate to climb at least 0.50 percentage points by the end of the year. The federal funds rate is already at its highest level since 2007, in a range between 5% and 5.25%.
Even though inflation has slowed since last summer's peak, Powell said there hasn't been enough improvement in underlying trends to feel comfortable. He said one measure the Fed closely watches remains “far above our target and not really moving down. We want to see it moving down decisively, that's all.”
Many traders on Wall Street came into Wednesday bracing for just one more hike this year, if any.
“To keep the economy from skidding, or screeching, to a halt it only makes sense to take a breather and see how things shake out for a while,” said Brian Jacobsen, chief economist at Annex Wealth Management. "If they do restart their hikes and squeeze in not just one but two hikes this year, then they do risk bigger problems for the economy."
In anticipation of future increases to rates, yields in the bond market immediately erased earlier losses following the Fed's announcement. The 10-year yield rose to 3.80% from 3.77% just before the Fed's announcement. It was at 3.82% late Tuesday. That yield helps set rates for mortgages and other important loans.
The two-year Treasury yield, which moves more on expectations for the Fed, climbed to 4.69% from 4.67%.
Stock indexes also initially sank in unison following the Fed's announcement amid worries about higher rates, which not only slow the economy but also drag down prices of stocks, bonds and other investments.
Stocks pared their losses and bond yields gave back some gains as Powell spoke at a press conference, saying no decisions on upcoming rate hikes had been made and that the Fed's next meeting in July is “live.”
Some of the sharpest drops in the stock market came from several health insurers after UnitedHealth Group flagged how many customers were getting knee procedures and other outpatient services done. That’s something that could raise costs for insurers, and UnitedHealth fell 6.9%. Humana dropped 11.6%.
Stocks of companies that make products used in hip replacements and other health procedures, meanwhile, were at the front of the market. Stryker rose 4.4%, and Edwards Lifesciences gained 4.2%.
Wednesday marked the first time in more than a year where the Fed has not hiked rates at a meeting, after calls for a pause climbed as high rates have already caused damage in several corners of the economy.
Hikes to interest rates take a notoriously long time to take effect, and they can do so in unanticipated ways. Already, they’ve helped lead to three high-profile failures in the U.S. banking system, a monthslong contraction in the manufacturing industry and worries about a possible recession.
But inflation is still too high for comfort. It’s hurting all kinds of households, particularly those with lower incomes.
In stock markets abroad, indexes were modestly higher in Europe and mixed across Asia. Japan's Nikkei 225 rose 1.5%, continuing a strong run where it's already jumped more than 28% this year.
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AP Business Writers Alex Veiga, Matt Ott and Joe McDonald contributed.
