Powell indicated that stocks are falling for the third day as investors consider raising interest rates
US stocks closed lower on Thursday capping a turbulent session after the Federal Reserve’s latest policy announcement and subsequent statements from President Jerome Powell caused chaos in the markets.
The Standard & Poor’s 500 Index is down 0.9%, while the Dow Jones Industrial Average is down 100 points, or 0.4%. The heavy Nasdaq Composite is down 1.4%. The moves extend Wednesday’s Fed sell-off that saw the S&P 500 and Dow erased about 1.7% and the Nasdaq fell 1.8%, marking the third consecutive day of declines for US stock markets.
Elsewhere in the major moves in the wake of the Fed’s decision, the rate-sensitive 2-year Treasury settled near 4.1%, the highest since 2007, while the 10-year Treasury remained near 3.5%, the highest level since 2011.
On Wednesday, US central bank officials raised interest rates by 75 basis points for the third time in a row, raising the federal funds rate to a new range of 3.0% to 3.25% from the current range between 2.25% and 2.5%.
Policy makers also expect to raise rates higher than before and maintain this level, with the Fed funds rate expected to rise to 4.4% by the end of this year and 4.6% by the end of 2023. This is up from 3.4% this year and 3.8% previously.
The Fed’s move on Thursday was followed by a group of central banks around the world. The Bank of England raised its key interest rate by 50 basis points, and the Swiss National Bank increased by 75 basis points. Market watchers also expect the European Central Bank to raise interest rates when it meets next month.
“With the new rate outlook, the Fed is making a tough landing plan – an easy landing is almost out of the question,” said Sima Shah, chief global strategist at Global Investors. Powell’s admission that there will be below-trend growth for some time should be translated as the central bank talks about ‘recession’.
Certain economic data points mirrored the Fed’s campaign. Mortgage rates continued to rise, reaching nearly 6.3% on a 30-year fixed loan and remaining at their highest level since 2008.
Elsewhere, initial jobless claims rose to 213,000 in the week ended September 17 from a downwardly revised 208,000 the previous week — the lowest since May — the Labor Department said Thursday. Economists called for 217,000 claims, according to consensus estimates compiled by Bloomberg.
In corporate news, Lennar (LEN) shares rose 2% in the wake of the earnings, even as the homebuilder announced that third-quarter results were weighed down by the higher rates.
KB Home (KBH) was also a driver after the company cited headwinds from ongoing supply chain restrictions and warned that these issues could affect fourth-quarter results. Shares fell 5%.
Wednesday’s S&P losses were the index’s 29th decline this year between 1% and 2% — the largest since 2008, which saw 34 such declines, Data from Compound Advisors. I managed to avoid the 30th on Thursday.
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter Tweet embed
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