Stocks opened firm but lost steam after the rate decision and Kevin Warsh's press conference. The Federal Reserve voted unanimously to lift the overnight rate by a quarter point, setting a new band of 3.75% to 4%. It was the first hike since July 2023, and officials indicated they might raise rates again before year end.
Warsh did not sugarcoat the inflation backdrop. "The plain fact is that inflation is too high, and has been for too long," he said, adding, "This summer's inflation readings do not tell me that underlying trends have meaningfully improved." His repeated emphasis that price pressures are not easing rattled risk appetite.
The 30-member Dow shed 631.21 points, or 1.21%, to 51,461.90, with Goldman Sachs pacing the decline. The S&P 500 slipped 0.45% to 7,551.81, and the Nasdaq inched down 0.01% to 25,978.42. As of 4:44 PM EDT, the Dow's last trade reflected those losses.
Banks took a hit after the decision. Shares of Bank of America and Wells Fargo each fell nearly 3% amid worries that higher rates could crimp lending and growth. American Express and Goldman Sachs each lost almost 4%.
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One bright spot: Intel rose 4% after a report said it was in discussions with South Korean memory giant SK Hynix about making chips in the U.S., cushioning the Nasdaq.
The 10-year Treasury yield pushed back above 5% as investors fretted the Fed may still be late in taming inflation, even with Wednesday's increase.
Art Hogan, chief market strategist at B. Riley Wealth, said the outcome "was within consensus," but Warsh's tougher tone suggests yields could stay elevated longer. "The market is taking its cues currently from the yield on the 10-year bumping back up over 5%, which is a massive psychological level," Hogan said, noting that a stickier inflation path and a jumpy yield curve "both become headwinds for markets in the near term."
Energy is adding to the strain. For the first time, U.S. diesel prices reached $6 per gallon on Friday, a move attributed to supply constraints connected to the wars in Ukraine and Iran. Crude is also holding above $100 a barrel.
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