Investors are keenly focused on Fed policy as the central bank moves to reverse low interest rates and the extraordinary support it began providing for the economy two years ago when the pandemic knocked it into a recession.
Stocks closed lower and bond yields rose on Wall Street Wednesday after details from last month’s meeting of Federal Reserve policymakers showed the central bank intends to be aggressive in its efforts to fight inflation. The S&P 500 fell 1 percent, adding to its losses from a day earlier. The Dow Jones Industrial Average dropped 0.4 percent and the Nasdaq slid 2.2 percent. The minutes from the meeting three weeks ago reveal that Fed policymakers agreed to begin cutting the central bank’s stockpile of Treasurys and mortgage-backed securities by about $95 billion a month, starting in May. That’s more than some investors expected and nearly double the pace the last time the Fed shrank its balance sheet. At the meeting, the Fed raised its benchmark short-term rate by a quarter percentage point, the first increase in three years. The minutes showed many Fed officials wanted to hike rates by an even bigger margin last month, and they still saw “one or more” such supersized increases potentially coming at future meetings. “Essentially, the Fed has concluded that a good offense is the best defense,” said Sam Stovall, chief investment strategist at CFRA. “We’re likely to experience not only higher short-term interest rates as a result of the Fed’s actions, but also higher long-term rates, which should pressure potential (stock) gains.” Higher rates tend to reduce the price-to-earnings ratio of stocks, a key valuation barometer. Such a scenario can particularly hurt stocks that are seen as the priciest, which includes big technology companies. That explains why tech stocks were the biggest drag on the benchmark S&P 500 Wednesday. Apple fell 1.8 percent and Microsoft shed 3.7 percent. Communications companies, retailers and others that rely on direct consumer spending also weighed heavily on the index. Amazon fell 3.2 percent and Facebook parent Meta fell 3.7 percent. The S&P 500 ended down 43.97 points to 4,481.15. The Dow slid 144.67 points to 34,496.51, and the tech-heavy Nasdaq lost 315.35 points to 13,888.
