4:09pm: No rate hike, but a market dip nonetheless
The Dow closed Wednesday down 77 points, 0.2%, at 34,441, the Nasdaq Composite lost 209 points, 1.5%, to 13,469 and the S&P 500 declined 42 points, 0.9%, to 4,402. The small-cap Russell 2000 index shed 13 points, 0.7%, to 1,814.
The market swung decidedly downward after the Fed announced its decision to leave rates unchanged. The central bank projected one more rate hike in 2023 followed by two cuts in 2024. That's fewer cuts than previously expected, which suggests rates could stay high for a long time to come.
Investors responded with a selloff.
“The US economy is too strong and this rate hiking cycle will last a lot longer than Wall Street wants,” said Edward Moya, senior market analyst at Oanda.
2:48pm: Fed delivers expected result
Shortly after the Fed elected to leave interest rates unchanged, the Dow was up 188 points, 0.5%, to 34,706, while the Nasdaq Composite lost 21 points, 0.2%, to 13,657 and the S&P 500 added 4 points, less than 0.1%, to 4,448.
The move isn’t a reversal of the current tightening cycle but rather a pause, with the Fed indicating that at least one more rate hike is expected later in 2023. Such a move would be the 12th increase since the current cycle started in March 2022.
According to the central bank’s dot-plot projections, one additional cut is likely this year followed by a pair of cuts in 2024. That’s actually two fewer cuts than projected after the Fed’s last meeting in June, indicating that interest rates will likely remain higher for an extended period of time.
12:00pm: Blue-chips rise but tech holds fire ahead of rate decision
US blue chips pushed ahead but tech stocks were subdued ahead of the interest rate decision by the Federal Reserve.
At midday, the Dow Jones Industrial Average was up 200.63 points, 0.6%, at 34,718.36, the S&P 500 was up 9.75 points, 0.2%, at 4,453.70 but the Nasdaq Composite was down 8.46 points, 0.1%, at 13,669.72.
Positive comments from Bank of America's chief financial officer Alastair Borthwick who said prospects for a US economic downturn are getting dimmer amid robust consumer spending boosted the mood as investors wait to see what tone the US central bank strikes alongside an expected rate pause.
Meanwhile, Instacart (NASDAQ:CART) has pulled back after its stellar debut with shares down 4.9%.
9:40am: US stocks push higher ahead of rate decision
US stocks climbed ahead of the interest rate decision by the US central bank later today.
Shortly after the opening bell, the Dow Jones Industrial Average was up 103.82 points, 0.3%, at 34,621.55, the S&P 500 was up 12.54 points, 0.3%, at 4,456.49 and the Nasdaq Composite was up 30.87 points, 0.2%, at 13,709.05.
Craig Erlam at Oanda said the Fed meeting today is widely expected to end in an agreement not to hike interest rates this month with the key takeaway being whether they intend to again in this cycle.
"The ECB strongly hinted that it is probably done last week but I'm not convinced we'll get the same signal from the Fed and neither, it would appear, are markets," he thinks.
"We have seen the odds of another hike creeping up a little recently amid more resilience in the economy which will likely make the central bank a little apprehensive about declaring victory or even suggesting they believe they've done enough," he added.
Bank of America’s chief financial officer has said it is “difficult” to see a US recession while elevated consumer spending boosts the country’s economy, reported by the Financial Times.
The bank has tracked consumer spending up 4% from a year ago, which is “probably indicative of the US consumer” as a whole given the lender’s prominent role in domestic banking, Alastair Borthwick said at a Bank of America conference.
Still, Borthwick noted that buying behaviour has changed as consumers shift to spending on services.
Elsehwhere, General Mills (NYSE:GIS) eased 1.3% after reporting a rise in sales in the financial first quarter but a fall in earnings as it highlighted an increasingly cautius consumer.
7:00am: Futures higher ahead of interest rate decision
US stocks futures edged higher ahead of a trading session likely to be dominated by the Federal Reserve’s interest rate decision, statement and press conference.
In pre-market trading, futures for the Dow Jones Industrial Average were 0.2% higher, while those for the S&P 500 rose 0.2%, and contracts for the Nasdaq 100 futures were up 0.2%.
The US central bank is widely expected to hold interest rates steady at a range of 5.25% to 5.5% but investors will be watching for the Fed’s “dot plot” of economic and policy projections for the coming year.
Julien Lafargue, chief market strategist for Barclays Private Bank thinks the real question for markets is what will happen to the central bank’s projections, “the dot plot”.
In particular, there is some uncertainty as to what FOMC members will consider to be the long term equilibrium for interest rates and how we will get there starting in 2024, he said.
Currently, the median dot suggests a rate of 4.6% in 2024 and 2.5% for the long term.
“We believe the risk here is to the upside as the Fed may want to reinforce its message that interest rates are due to stay higher for longer,” he said.
Elsewhere, investors will look for economic commentary from parcel delivery group FedEx (NYSE:FDX) and breakfast cereal producer General Mills (NYSE:GIS) as they report results.