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Wall Street took a thrashing on Wednesday as traders fretted that a rosier economic outlook from the Federal Reserve could prompt the central bank to cut down on its bond buying sooner than expected.
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The Dow Jones Industrial Average fell 206 points, or 1.4%, to 15112, the S&P 500 dipped 22.9 points, or 1.4%, to 1629 and the Nasdaq Composite fell 39 points, or 1.1%, to 3443.
The big day finally arrived for Wall Street: The Federal Reserve unveiled its latest monetary-policy decision and forecasts.
The central bank said it will continue buying assets at a clip of $85 billion a month, and hold short-term interest rates at essentially 0% until the unemployment rate falls to 6.5%. Chairman Ben Bernanke also said the central bank may begin paring back its bond purchases later this year and halt the program altogether by the middle of next year. However, he said, that could change based on changes in economic conditions.
The central bank also said it sees the unemployment rate falling faster than it forecast in March. It now sees the jobless rate clocking in at 6.5% to 6.8% next year, from 6.7% to 7%. At the same time, it also upped its forecast for economic growth in 2014 to 3% to 3.5%, from 2.9% to 3.4%.
The markets panned the news, selling off during Bernanke's press conference.
"Bottom line, the Fed acknowledged a slightly better economic outlook and the market can only take that as a verbal [first] step to some change in policy at their next meeting in July," Peter Boockvar, lead portfolio manager at Excelsior Wealth Management at Morgan Stanley, wrote to clients.
Paul Edelstein, director of financial economics at IHS Global Insight, echoed that view, saying: "The Fed sent more tapering signals than we anticipated for this meeting. But we maintain that the Fed is too optimistic on unemployment, and continue to believe that it won’t taper until 2014."
In corporate news, FedEx (NYSE:FDX) posted adjusted fiscal fourth-quarter profits of $2.13 a share, topping the Street’s view of $1.96. Sales of $11.4 billion matched expectations. The shipping giant is seen as a bellwether since it connects so many different parts of the business supply chain.
Commodities prices were also little changed ahead of the Fed decision. The benchmark U.S. crude oil contract rose 15 cents, or 0.15%, to $98.59 a barrel. Wholesale New York Harbor gasoline rose 0.39% to $2.891 a gallon. In metals, gold climbed $5.0, or 0.42%, to $1,373 a troy once.
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