Wall Street Slides as Fed Signals There Won't be Soft Landing; S&P 500 Down 1.1%

The Federal Reserve's aggressive rate hikes spooked the US markets on Thursday, with stocks plunging across the board.

While the S&P 500 dropped 1.1 percent, the Dow Jones Industrial Average slid 150 points, or 0.5 percent and the technology-focused Nasdaq Composite was down by 1.7 percent.

No Pivoting Away

After rolling out a 75 basis point hike in benchmark interest rates, Federal Reserve Chairman Jerome Powell stated unambiguously that it was too premature to talk about pivoting away from a high rate regime. The Wall Street was expecting slightly more dovish comments from the Fed Chair.

New York Stock Exchange
New York Stock Exchange Wikimedia Commons

The 75 basis point rate hike announced on Wednesday was the fourth consecutive interest rate hike of that range by the Fed, which is focused on taming the runaway inflation.

Hawkish Press Conference

"The market initially viewed the November Federal Open Market Committee (FOMC) statement as dovish, but a hawkish press conference caused almost a full reversal of these moves due to comments that the 'ultimate level of interest rates will be higher than previously expected' and it is 'premature to think about pausing rate hikes,'" economists at Bank of America said, according to Bloomberg.

While the Wall Street reacted negatively to the US central bank move, the investors were also influenced by the rate hike by the Bank of England, which increased the interest rates by three quarters of a percentage point.

Wednesday's rate hike by the Fed was the sixth rate hike this year as red hot inflation continues to ravage the world's largest economy.

No Soft Landing

Fed Chair Jerome Powell reiterated the need to bite the bullet and face the pain until inflation comes down to a reasonable level, effectively ruling out a soft landing for the economy. "The inflation picture has become more and more challenging over the course of this year. That means we have to have policy more restrictive, and that narrows the path to a soft landing," he said.

US stocks
People queue beside the bronze bull in the Financial district which has become a Wall Street icon in New York City, July 18, 2013. U.S. stocks continued to rise on Thursday, sending the Dow Jones Industrial Average and the S&P 500 to fresh all-time highs, boosted by upbeat economic data and corporate earnings. IANS

"The inflation picture has become more and more challenging over the course of this year. That means we have to have policy more restrictive, and that narrows the path to a soft landing," he added.

There Will Be More Rate Hikes

Significantly, the Fed said it has not started, yet, to think about pausing the rate hikes. According to the Federal Open Market Committee (FOMC), there will be more rate increases in the coming months.

The Federal Reserve
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"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 FOMC policy statement said.

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