Stocks closed lower on Wall Street ahead of a key Federal Reserve interest rate decision. The S&P 500 fell 1.1% on Tuesday. The Nasdaq composite and the Dow Jones Industrial Average also lost ground. Treasury yields were mostly higher. Traders are waiting to see how far the Fed will raise interest rates at its meeting which ends Wednesday. The Fed has raised the cost of borrowing in hopes of curbing the highest inflation in four decades. Traders fear that the Fed will overshoot its target and slow the economy so much that it will trigger a recession.
Stocks close lower ahead of Fed interest rate decision
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Stocks fell sharply in afternoon trading on Wall Street on Tuesday ahead of a key interest rate decision by the Federal Reserve.
The S&P 500 index fell 0.9% at 3:37 p.m. East. More than 90% of stocks and all sectors of the benchmark lost ground as traders wait to see how far the Fed will raise interest rates at its meeting which ends Wednesday.
The Dow Jones Industrial Average fell 257 points, or 0.8%, to 30,763 and the Nasdaq fell 0.7%.
“The market is definitely bracing for the worst and you’re seeing some mild selling pressure,” said Paul Kim, CEO of Simplify ETFs.
Retailers, technology stocks, healthcare companies and banks were among the highest weightings in the market. Best Buy fell 4.1%, Microsoft 0.8%, Abbott Laboratories 1.6% and JPMorgan Chase 1.8%.
US crude oil prices fell 1.5% and weighed on energy stocks. Exxon Mobil fell 0.7%.
Small company stocks fell more than the broader market. The Russell 2000 Index fell 1.4%.
Bond yields mostly rose slightly. The 10-year Treasury yield, which influences mortgage rates, rose to 3.56% from 3.52% late Monday and is trading at its highest levels since 2011.
The 2-year Treasury yield, which tends to follow Fed action expectations, rose to 3.96% from 3.95% Monday night and is hovering around its highest levels since 2007.
Stocks fell and Treasury yields rose as the Fed hiked borrowing costs in hopes of curbing the highest inflation in four decades. The central bank’s aggressive rate hikes have left markets jittery, especially as Fed officials say they are determined to keep raising rates until they are sure inflation is under. control.
Fed Chairman Jerome Powell bluntly warned in a speech last month that rate hikes “would cause pain.”
“He did everything he could to signal that this would be another aggressive move,” said Liz Young, head of investment strategy at SoFi. “He was crystal clear on what they were focused on.”
The Fed is expected to raise its short-term policy rate by a substantial three-quarters point for the third time at its meeting on Wednesday. That would take its benchmark rate, which affects many consumer and business loans, to a range of 3% to 3.25%, the highest level in 14 years, and zero at the start of the year.
Wall Street fears the rate hikes will go too far in slowing economic growth and pushing the economy into a recession. Those worries have been heightened by data showing the US economy is already slowing and companies warning of the impact of inflation and supply chain issues on their operations.
Ford fell 11.7% after cutting its third-quarter profit forecast as a parts shortage will leave it with up to 45,000 unfinished vehicles on its lots by the end of the quarter on September 30. Last week, FedEx and General Electric warned investors of the damage to their operations from inflation.
The United States is not alone in suffering from runaway inflation or dealing with the impact of efforts to curb high prices.
Sweden’s central bank raised its key rate by one percentage point to 1.75% on Tuesday, catching almost everyone off guard as it strives to bring down inflation measured at 9% in August.
Consumer inflation in Japan jumped in August to 3%, its highest level since November 1991, but well below 8% and above in the United States and Europe. The Bank of Japan is expected to hold a two-day monetary policy meeting later this week, although analysts expect the central bank to stick to its accommodative monetary policy.
Rate decisions from Norway, Switzerland and the Bank of England come next.
European markets mostly fell, while Asian markets gained ground.
Yuri Kageyama and Matt Ott contributed to this report.