U.S. stocks declined on Wednesday as speculation grew that the Federal Reserve might increase interest rates this year to control inflation. While higher rates can curb rising prices, they also tend to slow economic growth and affect investment values.
The S&P 500 decreased by 1.2%, wiping out an earlier modest gain. This followed the Fed’s release of projections indicating that nine out of 18 policymakers anticipated at least one rate hike this year. The Dow Jones Industrial Average moved from a morning gain of 280 points to a 507-point drop, a decrease of 1%, and the Nasdaq composite fell by 1.3%.
Federal Reserve Chairman Kevin Warsh, in his first press conference, did not predict where the federal funds rate might end in 2026. He discussed potentially changing how the Fed communicates with financial markets and the public. Warsh eliminated forward guidance in Fed statements, which previously hinted at future rate directions.
Warsh emphasized that Wall Street should respond to economic reports on inflation and jobs based on their market impacts rather than anticipated Fed actions. This might lead to changes in the timing of projections released every three months by the Fed.
Following the release of projections, markets reacted uneasily. Warsh noted that he did not find strong conviction behind these projections. The Fed decided to maintain the current federal funds rate, consistent with its actions all year. Meanwhile, Treasury yields rose, with the 10-year yield moving from 4.43% to 4.49%, and the two-year yield rising from 4.05% to 4.21%.
Traders increased their bets on at least one rate hike this year, with CME Group data showing an 84% probability, up from 59.5% the previous day. High bond market yields, driven by inflation concerns, are threatening economic growth and weighing on investment prices.
SpaceX’s stock fell by 4.9%, marking its first loss since its market debut, while Microsoft, Amazon, and Nvidia also experienced declines, impacting the S&P 500. However, La-Z-Boy’s stock jumped by 14.8% due to stronger-than-expected profit and revenue, aided by new store openings. Despite this, CFO Taylor Luebke maintained a cautious outlook on the sales environment.
The S&P 500 ended at 7,420.10, down 91.25 points. The Dow Jones closed at 51,492.55 with a loss of 507.12 points, and the Nasdaq composite fell by 354.69 points to 26,021.66.
A report released Wednesday noted that U.S. retailers saw May revenues exceed expectations, suggesting that consumer spending could help sustain the economy. High inflation, however, has dampened consumer confidence.
Oil prices steadied after earlier declines, with a tentative U.S.-Iran deal potentially reopening the Strait of Hormuz, allowing oil flow from the Persian Gulf. Brent crude oil prices rose 0.7% to $79.55 per barrel, down from recent highs but above previous levels before recent conflicts.
Globally, stock movements varied. South Korea’s Kospi increased by 1.6%, while Hong Kong’s Hang Seng declined by 0.7%.
AP Business Writers Chan Ho-him, Matt Ott, and Elaine Kurtenbach contributed to this report.