Wall Street stocks fell in late trading on Wednesday, as investors sought to balance the Federal Reserve’s decision to raise interest rates by a quarter of a percentage point, while investors acknowledged pressure on the banking sector. Also controls the economy.
The S&P 500 rose sharply immediately after the results were announced, eventually falling 1.65 percent for the day. Trading was muted in the morning as investors awaited the central bank’s decision.
The central bank’s task on Wednesday was a challenging one; It must be tough on stubborn inflation that has pushed up the cost of living for households across America, while also addressing the recent strain on the banking system caused by rapid increases in interest rates aimed at addressing rising prices.
The central bank initially appeared to be threading the needle and stock prices rose as the decision was announced. But trading continued and Federal Reserve Chairman Jerome H. Powell responded to questions from reporters, saying some investors were unsatisfied that the Fed’s president had not done enough to assuage concerns about the continued fallout from the banking collapse in recent weeks.
“It’s making the same policy error that the Fed has routinely made throughout its history,” said Dan Calcagni, chief investment officer for wealth manager Mercer Advisors. “I think the Fed is slow to react to significant pressure on the banking system.”
In the bond market, the two-year Treasury yield, which is sensitive to changes in interest rates, fell sharply below 4 percent amid bets that Wednesday’s interest-rate hike could be the Fed’s last.
The central bank has been raising interest rates to control the economy and reduce inflation. That’s been part of the expansion in the banking sector in recent weeks, and now that same financial system pressure could put more pressure on the economy, and the central bank is removing some of the need to keep raising interest rates.
“This is seen as the last or close to the last hike,” said Jorge Goncalves, head of US macro strategy at MUFG Securities. “They were going to be very aggressive on inflation, but the banking crisis has done that to them.”
The uncertainty was reflected in trading, prompting intervention by regulators around the world and creating violent swings in financial markets that left investors, analysts and economists guessing about what the central bank might do on Wednesday. Last two weeks.
In general, the central bank wants to set investors’ expectations, orient them to the potential consequences of rate decisions, and limit potential market fallout from a surprise move. But Mr. Powell’s last public comments came days before Silicon Valley took control of the bank, with the Fed chairman testifying to Congress that he was ready to raise interest rates quickly in response to data that inflation was stubbornly embedded in the economy.
Mr. As the economic backdrop sharply changed after Powell’s comments, investors were left in the dark about what the central bank was going to do — stick to previous plans, or adapt to the new circumstances.
After the banking turmoil that reverberated around the world, many began to believe that the central bank might leave rates unchanged instead.
Los Angeles lender Baywest, which has joined other regional banks under pressure, said it tapped emergency cash after a 20 percent drop in its deposits since the start of the year.
The announcement sent PacWest’s stock price down 17 percent for the day, dragging down the stock prices of other regional banks as well. The moves illustrate the volatile backdrop ahead of the central bank’s decision to raise interest rates.
“I think the central bank is underperforming,” Mr. Calcagni said. “I think there’s more stress on the financial system than the Fed thinks.”