The losses that are seen in the Dow Jones Industrial Average, as well as other market trackers, can also be attributed to the rising inflation fears.
The Dow Jones Industrial Average (INDEXDJX: .DJI) is leading the major stock market indices losses, shedding 265.66 points atop a 0.77% plunge as the Fed indicated earlier expected interest rate hike to close at 34,033.67. The market experienced a broad sell-off on Wednesday after the policymaking Federal Open Market Committee (FOMC) noted that the rates may be pushed up as early as 2023, a timeframe earlier than the projections. Additionally, the Federal Reserve gave higher inflation expectations.
The S&P 500 (INDEXSP: .INX) also lost 0.54% or 22.89 points to close at 4,223.70 as all 11 sectors underperformed following the Feds policy meeting. The Nasdaq Composite (INDEXNASDAQ: .IXIC) slipped 0.24% to 14,039.68.
“This is not what the market expected,” said James McCann, Aberdeen Standard Investments’ deputy chief economist. “The Fed is now signaling that rates will need to rise sooner and faster. …This change in stance jars a little with the Fed’s recent claims that the recent spike in inflation is temporary.”
Following the FOMC meeting, Fed Chairman Jerome Powell said the Dot Plot projections for the rate hike should be taken with a “big grain of salt” and that the liftoff is “well into the future.” Per the bond purchases worth $120 billion the Federal Reserve has been making monthly, Powell said there is going to be an announcement when a decision to change this spending will be made.
“You can think of this meeting that we had as the ‘talking about talking about’ meeting,” Powell said. “In coming meetings, the committee will continue to assess the economy’s progress toward our goals. As we have said, we will provide advance notice before announcing any decision to make changes to our purchases.”
Dow Jones Losses Sparked by Rising Inflation
The losses that are seen in the Dow Jones Industrial Average, as well as other market trackers, can also be attributed to the rising inflation fears. According to the Fed, the inflation expectations for 2021 are now placed at 3.4%, a figure significantly higher than the prior 2.2% projections made in March.
With the dynamics attached to the reopening economy and the imbalance in demand and supply, Powell said inflation could run hotter than the Fed expected.
“As the reopening continues, shifts in demand can be large and rapid and bottlenecks, hiring difficulties and other constraints could continue to limit how quickly supply can adjust, raising the possibility that inflation could turn out to be higher and more persistent than we expect,” the Fed Chair noted during the news conference.
With the majority of the market on a freefall, notable cushions were provided by such stocks as Morgan Stanley (NYSE: MS), and American Airlines Group Inc (NASDAQ: AAL). While the former rose 0.44% to $91.10, the latter saw a growth of 0.18% to $22.83.
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