Stocks decline as Fed signals faster pace of rate hikes

Stocks fell Wednesday after the Federal Reserve added a third rate hike to its 2019 plans, reflecting views that inflation is beginning to pick up.

The Dow Jones Industrial Average dropped 44.96 points, 0.18%, to 24,682 in recent trading. The S&P 500 fell 5.01 points, or 0.18%, to 2,711.93. The Nasdaq Composite was down 19.02 points, or 0.26%, at 7,345.29.

The Federal Reserve raised its benchmark interest rate and maintained its stance for three rate hikes in 2018, partly easing concerns that the central bank would tighten policy at a faster pace than expected. The Fed said it is looking for three more rate hikes in 2019, up from its previous plan to raise rates two times.

“We suspect the Fed is leaning on the mixed inflation data in wages along with the escalating risks of a trade war to buy some time before making material changes to their rate forecast,” said Charlie Ripley, senior investment strategist for Allianz Investment Management. “Looking beyond 2018, it appears the Fed truly believes most of the fiscal stimulus will be felt next year.”

The Fed expects unemployment to fall from the current 4.1% to 3.8% this year, declining further in 2019 to 3.6%.

The rate hike was widely expected ahead of the meeting. This was the Fed’s sixth rate hike since December 2015.

Stocks reacted positively to the Fed’s initial statement before dropping into negative territory when Powell suggested that officials are considering holding more press conferences after their two-day policy meetings. In recent years, the Fed’s interest rate hikes have coincided with meetings that include a press conference with the Fed chair. Powell’s remarks confirmed some investors’ concerns that the central bank is planning to further accelerate rate hikes.

The market proceeded to swing between gains and losses heading into the close, with the financial sector contributing to Wednesday’s early gains. Higher interest rates are a tailwind for bank earnings, as firms can charge borrowers more for mortgages and other loans.

The yield on the benchmark 10-year Treasury note climbed to 2.901% compared to 2.881% on Tuesday.

Energy stocks also jumped about 2.6%. West Texas Intermediate crude settled 1.63% higher, or 2.6%, at $65.17 a barrel.

In corporate news, General Mills fell more than 8% after the cereal maker cut its profit forecast.

Facebook shares rose 1%, recovering slightly from sharp losses amid concerns over data privacy. The social media company’s CEO, Mark Zuckerberg, responded to the controversy in a Facebook post, saying it “made mistakes” in its handling of user information. Facebook has been under a microscope amid reports that data-analytics firm Cambridge Analytica improperly kept data tied to millions of users.