The S&P 500 pared its gains and the Dow briefly dipped into the red on Wednesday after the U.S. Federal Reserve raised interest rates and signaled more hikes to fight inflation, putting an end to its easy pandemic-era monetary policy.
The U.S. Central bank announced a quarter-percentage-point increase in its benchmark overnight rate and projected its policy rate would hit a range between 1.75% and 2% by year’s end in a stance that will push borrowing costs to restrictive levels in 2023.
While the U.S. central bank flagged the massive uncertainty the economy faces from the war between Russia and Ukraine and the ongoing COVID-19 crisis, it said “ongoing increases” in the target federal funds rate “will be appropriate” to curb the highest inflation the country has witnessed in 40 years.
The policy statement will be followed by Fed Chair Jerome Powell’s news conference at 1430 ET (1800 GMT) during which traders will closely watch for more clues on the pace of future rate increases.
“What we were seeing heading into this is buy the rumor, and now we are seeing a little bit of sell the news,” said Robert Pavlik, Senior Portfolio Manager at Dakota Wealth Management in Fairfield, Connecticut.