Wall Street Shifts As Rates Hold Steady

As was widely expected, the Federal Reserve kept its benchmark interest rate steady at its most recent meeting earlier this week.

Despite this, stocks slumped following the announcement, in anticipation of some more challenging times ahead.

While the Federal Reserve decided not to increase interest rates again to fight back inflation, it still said that the battle isn’t even close to over. That news comes as the Fed also adjusted its economic projections higher, which did little to quell investors’ fears.

After the announcement, as well as the release of the Summary Economic Projections and dot plot – which accompanied the Fed announcement – the three major stock indexes in the U.S. all retreated. The SEP predicted another interest rate increase of 25 basis points at some point this year, with the peak reaching a range of 5.50% to 5.75%.

The SEP further projected that there will be rate cuts next year that could total 50 basis points.

Ryan Detrick, who serves as the Carson Group’s chief marketing strategist, reacted to the news by saying:

“It’s your standard Fed day volatility. Yet, it wasn’t really a curve-ball event, because markets took things in stride. This day has had a bull’s eye on it all month, and now we can move past it.”

The Fed updated its projections, with its funds target rate going down to 5.1% by the end of 2023. It also revised its longer-term projections, revealing that the rate likely won’t dip below 4% for two more years, when it hits 3.9% at the end of 2025.

The Fed began to tighten the credit market considerably back in March, which has resulted in core inflation cooling down. Yet, while the Fed has a target inflation rate of 2%, it’s taken a very uneven and slow road trying to get there.

According to the SEP, inflation is projected to drop down to 3.3% by the end of this year, which would come closer to the Fed’s benchmark rate. But, there’s still quite a bit of work left to do to finally reach that 2% mark.

In fact, Jerome Powell, the chairman of the Federal Reserve, tried to temper any rosy economic projections at a press conference he held after this week’s meeting, saying that the country is a long way off reaching the Fed’s target inflation rate.

In acknowledging the relative strength that’s present in the U.S. economy today, the Fed reduced how many cuts they expect to make in 2024. What this implies is that the central bank’s strategy in fighting inflation is likely to be keeping interest rates higher for a longer period of time.

Preliminary data from Wednesday showed that the S&P 500 dropped 0.95%, down 42.02 points. The Dow Jones Industrial Average dropped 0.23%, falling 78.13 points. And the Nasdaq Composite dropped 1.53%, losing 209.62 points.

One thing that did shine some positive light on the future was the fact that Klaviyo, a company focused on marketing automation, had a solid debut on the NYSE. It marked the third IPO in recent days that showed success.