Fed Rate Hike Sends Wall Street Lower as Inflation Concerns Persist

The Dow Jones Industrial Average dropped 631.33 points, or 1.21%, to close at 51,461.78. The broader S&P 500 lost 33.59 points, or 0.44%, ending at 7,552.14, while the Nasdaq Composite was nearly unchanged, slipping 3.15 points, or 0.01%, to 25,978.43. (Tell Us USA Ai image)

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	Fed Rate Hike Sends Wall Street Lower as Inflation Concerns Persist Charles Mosley - Business/Economy/Money Tell Us USA News Network NEW YORK - U.S. stocks fell sharply Wednesday after the Federal Reserve raised its benchmark interest rate by a quarter percentage point and signaled that additional increases could follow if inflation remains elevated. The Federal Open Market Committee voted unanimously to lift the federal funds rate to a target range of 3.75% to 4%, the Fed’s first rate increase in more than three years. The decision came as the central bank confronts persistent inflation tied in part to higher crude-oil prices and broader cost pressures. The Dow Jones Industrial Average dropped 631.33 points, or 1.21%, to close at 51,461.78. The broader S&P 500 lost 33.59 points, or 0.44%, ending at 7,552.14, while the Nasdaq Composite was nearly unchanged, slipping 3.15 points, or 0.01%, to 25,978.43. Wall Street initially absorbed the rate move relatively calmly because investors had largely expected a 25-basis-point increase. Major indexes were higher before the Fed’s announcement, and the technology-heavy Nasdaq at one point led the advance. That changed during Fed Chair Kevin Warsh’s news conference, when his comments emphasized that inflation remained too high and that the central bank was prepared to continue tightening policy. Investors interpreted the message as a warning that borrowing costs may stay higher for longer, or rise further, than many had anticipated. The Dow’s steeper decline reflected broad pressure on economically sensitive blue-chip stocks and financial shares. The S&P 500 also turned lower after briefly gaining ground, while the Nasdaq’s comparatively small loss suggested continued support for some major technology and semiconductor companies. Higher interest rates can pressure the stock market because companies face higher costs for financing operations, acquisitions, inventory, construction and expansion. Consumers also may cut back on spending as rates rise for credit cards, auto loans and other borrowing. Higher rates can also reduce stock valuations, particularly for growth companies whose prices are based on expectations of earnings further in the future. Rising Treasury yields may shift investor money from stocks to government bonds, which offer higher returns with lower risk. Real estate, utilities, homebuilders and heavily indebted companies are often especially vulnerable when borrowing costs climb. The market response was amplified by already-rising Treasury yields, concerns over debt levels and an earlier surge in crude-oil prices, all of which had weighed on investors before the Fed’s decision. The Fed’s move underscores the tradeoff facing policymakers. Raising rates can slow inflation by reducing borrowing and spending, but it can also restrain economic growth, weaken consumer demand and pressure financial markets. For investors, the immediate concern was not simply the quarter-point increase announced Wednesday. It was the prospect of a sustained period of tighter monetary policy. If inflation fails to ease, the Fed could continue raising rates, placing additional pressure on stock valuations and corporate earnings. Market attention will now turn to inflation reports, employment data, Treasury yields and oil prices, each of which could influence the Fed’s next decision. A cooling in inflation could lessen the case for additional rate increases, while continued price pressure could reinforce expectations for more restrictive policy. Wednesday’s selloff showed that investors were less concerned about the expected rate increase itself than the possibility that higher borrowing costs could remain in place longer than previously anticipated.