Stocks tumble as Fed keeps policy on hold, raises inflation outlook

Fed leaves benchmark interest rate near zero

U.S. equity markets tumbled Wednesday after the Federal Reserve reiterated its belief that inflation is "transitory," but said that rate hikes will likely begin in 2023. 

The Dow Jones Industrial Average fell 265.66 points, or 0.77% while the S&P 500 and the Nasdaq Composite declined 0.54% and 0.24%, respectively. The Dow was down 382 points at its worst levels of the day. 

Ticker Security Last Change Change %
I:DJI DOW JONES AVERAGES 35061.55 +238.20 +0.68%
SP500 S&P 500 4411.79 +44.31 +1.01%
I:COMP NASDAQ COMPOSITE INDEX 14836.991139 +152.39 +1.04%

The Fed kept policy on hold, leaving its benchmark interest rate near zero and maintaining its bond-buying program at a pace of $120 billion per month, but moved up the forecast for the first rate hike to 2023 from 2024. More members, but not a majority, said the first rate hike could occur in 2022.  

The central bank raised its forecasts for inflation and economic growth. The Fed sees core personal consumption expenditures, its preferred inflation measure, rising to 3% this year before falling to 2.1% next year. That forecast was up from the previous outlook of 2.2% this year and 2% next year. 

The Fed also expects the economy will grow at a 7% pace in 2021, up from the previous forecast of 6.5%. The forecast for this year's unemployment rate remained at 4.5%.   

BIG-MONEY MANAGERS BACK FED'S BELIEF THAT INFLATION IS 'TRANSITORY'

The updated outlook caused the yield on the 10-year note to climb 7 basis points to 1.57%, to the highest level in more than a week. Selling across the complex swung the yield curve steeper, which aided big banks like JPMorgan Chase & Co. and Bank of America Corp

Ticker Security Last Change Change %
XLF FINANCIAL SELECT SECTOR SPDR ETF 36.26 +0.06 +0.17%
BAC BANK OF AMERICA CORP. 37.70 -0.26 -0.68%
JPM JPMORGAN CHASE & CO. 150.64 -0.29 -0.19%
XHB SPDR SERIES TRUST SPDR S&P HOMEBUILDERS ETF 74.35 +1.60 +2.20%

Homebuilders were lower after the Commerce Department said housing starts rose 3.6% to a seasonally adjusted annual rate of 1.572 million last month, missing the 1.63 million that analysts surveyed by Refintiv were expecting.

Elsewhere, Oracle Corp. reported earnings and revenue that exceeded Wall Street estimates but gave disappointing guidance for the current quarter as it plans to boost investments in its cloud-computing business. 

Ticker Security Last Change Change %
ORCL ORACLE CORP. 87.69 -3.00 -3.31%

General Motors Corp. will boost electric-vehicle spending by 30% to $35 billion through 2035, taking on Tesla and Ford. It also plans to open two new U.S. factories.

Ticker Security Last Change Change %
GM GENERAL MOTORS CO. 54.94 -0.70 -1.26%
TSLA TESLA, INC. 643.38 -5.88 -0.91%
F FORD MOTOR CO. 13.80 -0.11 -0.79%

Meanwhile, Johnson & Johnson will likely miss its COVID-19 supply target for the European Union, an EU Commission spokesperson said.

Ticker Security Last Change Change %
JNJ JOHNSON & JOHNSON 171.79 +1.81 +1.06%

Meal-kit maker Blue Apron Holdings Inc. will share more common stock. The size of the offering was undisclosed. 

Ticker Security Last Change Change %
APRN BLUE APRON HOLDINGS 3.71 -0.04 -1.07%

In commodities, West Texas Intermediate crude oil ticked up 3 cents to $72.15 a barrel and gold rose $5 to $1,859.50 an ounce.

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Overseas markets were mixed. 

In Europe, Britain’s FTSE 100 edged up 0.17%, France’s CAC 40 rose 0.2% and Germany’s DAX slipped 0.12%. 

Asian markets were lower across the board with China’s Shanghai Composite declining 1.08%, Hong Kong’s Hang Seng index sliding 0.7% and Japan’s Nikkei 225 losing 0.51%.