4:12pm: "We have a ways to go," says Jerome Powell
The Dow closed Wednesday down 505 points, 1.6%, at 32,148, the Nasdaq Composite slipped 366, 3.4%, to 10,525 and the S&P 500 lost 97 points, 2.5%, to 3,760.
The benchmarks owned lower and briefly reached positive territory in the early afternoon, but that was quickly dashed by the reaction to the Federal Reserve's decision to increase interest rates by another 75 basis points.
The increases are unlikely to cease in the near future either. In his remarks, Fed Chair Jerome Powell acknowledged, "We have a ways to go," before rate hikes could be paused.
Meanwhile, FAANG stocks struggled. Shares of Meta Platforms Inc, Amazon.com Inc and Netflix Inc each dropped about 5%, and Alphabet shares were close behind with a loss of 4%.
2:30pm: US markets react to Fed interest rate hike
The US Federal Reserve raised its interest rates by three-quarters of a point today, marking a boost in rates not seen since 2008, the last time interest ran at this level.
That brings US interest rates to 3.75% to 4%, following three hikes of 75 basis points over the summer, as the Fed attempts to slow inflation.
The central bank did signal a change in future rate increases; something required to avoid tipping the US economy into recession.
In a statement, Federal Open Market Committee wrote: “In determining the pace of future increases in the target range, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
The markets didn't agree with the rate hike, with the Dow Jones dropping by almost 300 points, the Nasdaq Composite and S&P 500 both saw similar downswings.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the Fed is signalling slower hikes are coming, with 50 basis points on the docket for December.
“This strikes us as a clear signal that wave of 75 bp hikes is over, unless the data between now and the December meeting - including two rounds of inflation and labor market reports - are unexpectedly awful. We don’t expect that, so we think markets now will gravitate towards a 50 bp hike in December. We’re not ruling out 25 bp, if the data co-operate, but whatever happens in December we doubt the Fed will be hiking again next year. They have done enough to make policy clearly restrictive, and intense downward pressure on inflation is now building in the pipeline,” Shepherdson wrote in a report.
12.05pm: US markets could move sharply
The major US indices were in the red midday, as all eyes were on the US Federal Reserve and chair Jay Powell, expected to make the sixth interest rate hike of the year.
At midday, the S&P 500 was down by 0.5% at 3,835, the Nasdaq Composite was down by 1% at 10,785 while the Dow Jones was down by 0.2% to 32,600 points.
Fawad Razaqzada, a market analyst with StoneX, said a fourth consecutive 75 basis point hike is not going surprise anyone, but the key question is whether the Fed will signal it is ready to pivot to a less hawkish stance in its December and subsequent meetings.
“Stocks and futures, dollar, bonds and gold prices are all in consolidation mode ahead of the big event. Halloween might be over, but the Fed could still scare the markets if recent expectations are not met, as the major indices test some key technical levels,” Razaqzada wrote in a report.
He said investors started to price in a pivot, which would provide a short-term boost to stocks and reduce the appeal of the US dollar against currencies where the central bank is having a hard time controlling inflation.
“However, I very much doubt the Fed will want to ease off the gas just yet, with inflation so high and employment remaining quite strong, as indicated by that strong ADP payrolls report earlier (239,000 versus 178,000 eyed). A 75-basis point rate increase is thus a more likely outcome in the conclusion of today’s meeting, rather than a downshift to 50 bps. This would raise interest rates to a range of 3.75 to 4%, the highest level since 2008,” Razaqzada wrote.
The major movers at midday included consumer products manufacturer DuPont de Nemours, up by 5.5%, while Liberty Global was up by 5.2%, and Boeing flew higher by 4.7%.
On the downside, Paramount Global fell by 11.4%, as the company’s 3Q revenue of US$6.92 billion missed analyst expectations of $7.03 billion. Extra Space Storage dropped by 9.8% and Estee Lauder slid by 8%.
9.35am: Dovish hints from Fed could spark strong reaction, analyst says
US stocks dipped into the red on Wednesday morning as investors eagerly await the outcome of the Fed’s latest rate-setting meeting, with the central bank expected to raise the interest rate by a further 75 basis points in its continued fight against inflation.
Shortly after the open, the Dow Jones Industrial Average had slipped 131 points or 0.4% at 32,522 points, the S&P 500 was down 19 points or 0.5% at 3,837 points, and the Nasdaq Composite had shed 56 points or 0.5% at 10,835 points.
In terms of major movers, entertainment giant Paramount Global had plunged about 9% at the open after posting a 3Q earnings miss, while CVS Health Corporation rose 3.1% on better-than-forecast 3Q earnings and revenue and the raising of its full-year profit forecast.
OANDA senior market analyst Craig Erlam said it was unsurprising to see some caution in financial markets on Wednesday as investors await the Fed’s rate decision.
He noted that markets had largely priced in a 75 basis point rate hike, and there didn’t appear to be any doubt about that outcome.
“The communication that accompanies it is where the interest is, with increasing numbers anticipating a hint at a slower pace from December,” Erlam said. “Investors are so desperate for anything remotely dovish at this point that even a hint could get a strong reaction.”
6.30am: Powell comments crucial
US stocks are expected to edge lower at the open on Wednesday, extending the previous session's weak start to the new month as investors cautiously await the latest Federal Reserve policy meeting decision.
Futures for the Dow Jones Industrial Average were 0.1% lower in pre-market trading, while those for the S&P 500 were also down 0.1%, and contracts for the Nasdaq-100 shed 0.2%.
The Federal Reserve Open Market Committee (FOMC) is widely expected to agree to raise US interest rates by another 75 basis points (bp) as the US central bank tries to cool inflation, which remains near 40-year highs, but the main focus will be on the Fed governor, Jay Powell's accompanying comments.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank said: "Powell will probably hammer the dovish hopes, and the latest risk rally when he speaks following the FOMC decision today. This is, at least, what the latest economic data from the US suggests.
"Last Friday, the US core PCE index showed further advance in consumer prices. Though the rise was slower than analyst expectations, the core PCE in the US advanced above 5% in September. That’s twice the Federal Reserve’s (Fed) 2% policy target.
"And yesterday’s job openings report showed another 437,000 vacancies in September, pushing the number of total job openings to 10.72 million jobs."
She added: "In summary, for now, the US jobs market is not tightening, and the US inflation is not easing. So, there is no reason for the Fed to announce the end of the tightening cycle, in a way to trigger a positive euphoria across stock and bond markets, which would, in return, boost both inflation and jobs in the US.
"Maybe Powell could hint that, with today’s 4th consecutive 75bp hike, the Fed could reduce the size of its rate hikes, but he can certainly not promise, when and where, the tightening will pause."
Once the Fed rate decision and statement, due around 2.00pm ET Wednesday, is out of the way, investors will still have Friday's, always volatile, October US non-farm payrolls report to negotiate.
Ahead of that the ADP private payrolls report is out on Wednesday morning, a couple of hours before the Fed decision, and is expected to have eased below 200,000 in October.
"Any positive surprise will likely further boost the Fed hawks, and dampen the mood in risk assets," Ozkardeskaya concluded.