Markets

Stocks slide as Fed points to March rate rise

Wall Street
US markets fell after the statement

US stocks gave up early gains to finish Wednesday’s session mostly lower after the Federal Reserve made it clear that it will “soon be appropriate” to raise interest rates.

Investors have pencilled in March for the first of three likely increases this year as the central bank looks to combat a surge in inflation.

The Fed also confirmed that it will still end its asset purchases at the same time, as it sees enough evidence of growth in the economy to tighten monetary policy.

Investors had been concerned that a more hawkish policy would be announced, with an immediate rate hike and halt to quantitative easing.

Even so, the Dow Jones Industrial Average closed down 0.38%, while the S&P 500 lost 0.15% and the Nasdaq Composite clung to a gain of just 0.03%.

James McCann, deputy chief economist at abrdn, said: “A bumpy week in markets has done little to push the Fed off its accelerated tightening schedule, with today’s meeting setting the stage for an interest rate hike in March.

“While the central bank has been sensitive to market stress in the past, it is harder to change course with inflation at 7%, the unemployment rate below 4%, wage growth accelerating and real interest rates deeply negative.

“Looking forward, inflation remains the big risk for markets. If the Fed is wrong that this will start to moderate in 2022, it will be forced to go faster on policy tightening, even if this proves disruptive for asset prices, and consequently investors.”   

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