The Dow Jones Industrial Average dropped Wednesday after the Federal Reserve raised interest rates for the first time since July 2023 and Chairman Kevin Warsh warned inflation remains too high. The S&P 500 and Nasdaq Composite also erased earlier gains, while bank stocks led the losses and the 10-year Treasury yield pushed back above 5%.
The Dow Jones Industrial Average closed down 630.97 points, or 1.21%, at 51,462.14, after trading down as much as 751 points, or 1.5%, during the session. The S&P 500 fell 0.5% and the Nasdaq Composite shed 0.4%, with all three indexes higher earlier in the day before the Fed's decision and Warsh's press conference.
Its Federal Open Market Committee voted 12-0 to raise the overnight funds rate by a quarter percentage point, bringing the target range to 3.75%-4%, the first increase since July 2023. The central bank also signaled another hike could come this year.
Stocks took the expected move in stride at first but turned lower as Warsh spoke, repeatedly stressing that inflation risk has not eased. According to CNBC: "The plain fact is that inflation is too high, and has been for too long," Warsh said. The 10-year Treasury yield traded back above 5% as he spoke, with traders fearing the Fed may still be behind the curve on inflation.
Banks lead the decline
Financial shares led Wednesday's slide on fears there may be more rate hikes coming from the Fed. The State Street SPDR S&P Bank ETF (KBE) shed 2.6%, its worst day since Feb. 27, when it dropped nearly 5%. JPMorgan Chase fell 1.5%, while Goldman Sachs, Wells Fargo, Bank of America and Citigroup all fell more than 3%.
Diesel prices add pressure
Beyond the rate decision, U.S. diesel prices hit $6 per gallon on Friday for the first time amid supply constraints tied to the Ukraine and Iran wars, while crude oil prices held above $100 a barrel. Intel shares bucked the broader decline, however, trading higher on a report that it was in talks with SK Hynix to build semiconductors in the U.S., helping to stem losses for the Nasdaq.
Source: CNBC
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