Topline
Stocks fell Wednesday as Federal Reserve Chairman Jerome Powell crushed short-lived optimism about monetary policy loosening any time soon.
Jerome Powell said Wednesday interest rates have a ways up to go still.
Key Facts
The Dow Jones Industrial Average fell 2.6%, or 850 points, after Powell’s 2:30 EST press conference following the Fed’s announcement of a 75 basis-point increase to the federal funds rate.
The S&P 500 and tech-heavy Nasdaq fell 3% and 4% during the period, respectively.
The Dow had risen more than 300 points immediately after the hike as investors clung to a line in the press release indicating that the Fed could soon factor in the impact of rate hikes on the stock market as optimism for less hawkish plans.
“At first glance, it was looking like Christmas might have come early for Wall Street,” OANDA analyst Edward Moya wrote.
Bond markets simultaneously fell, with 10-year U.S. Treasury yields rising as much as 10 basis points to 4.08% as investors piled into safer assets.
Crucial Quote
“It is very premature, in my view, to think about or be talking about pausing our rate hikes,” Powell said Wednesday as he held steady in his commitment to bring down sticky inflation. “We have a ways to go.”
Key Background
This is the sixth rate increase of 2022, raising the federal borrowing rate to a target rate of 3.75% to 4% after two years at 0% to 0.25%. Stocks historically fall following rate hikes as higher borrowing costs often result in less discretionary income for consumers and lower corporate profits. The S&P is down 21% year-to-date, on pace for its worst year since the Great Recession. Prior to this spring, the Fed hadn’t increased rates by 75 basis points since 1994.
Contra
Despite Powell’s tone, many experts still expect the Fed to slow rate hikes following its next meeting in December. CME Group’s closely watched FedWatch tool projects a 55% chance of a 50 basis-point increase next month. Wednesday “opens the door” for an upcoming 50 basis-point hike, Gargi Chaudhuri, head of investment strategy at BlackRock’s iShares ETFs unit, wrote in a Wednesday note to clients. “The market had priced too high a probability of an overly aggressive Fed,” according to Chaudhuri.
Further Reading
Federal Funds Rate History 1990 to 2022 (Forbes)
Dow Closes Best Month In 46 Years As Investors Shake Off Fed’s Ghouls (Forbes)
Source: https://www.forbes.com/sites/dereksaul/2022/11/02/dow-falls-700-points-as-powell-says-theres-a-ways-to-go-for-rate-hikes/