Wall Street loses ground after Fed pauses rates, says they will stay higher for longer

By Stephen Culp

(Reuters) – Wall Street retreated the turned negative as the U.S. Federal Reserve held key interest rates unchanged as widely expected, but warned that restrictive policy could remain in place through 2024.

All three major U.S. stock indexes whipsawed lower after the announcement and the accompanying Summary Economic Projections and dot plot, which sees an additional 25 basis point rate hike this year, peaking in the 5.50%-5.75% range.

“There were no surprises,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York. The Fed “sees one more rate hike, their inflation objective is still 2% and the labor market is still tight. The Fed now sees interest rates remaining elevated a bit longer than previously stated, and that’s cutting into the market.”

Since the Fed embarked on its current tightening cycle in March, core inflation has cooled. But the progress of its descent toward the central bank’s 2% annual target has been slow and uneven, and the U.S. economy has proven resilient, fueling worries that interest rates will remain restrictive for longer than many market participants may have hoped.

Fed Chairman Jerome Powell is expected to give a short statement and answer questions from the press at 2:30PM EST.

“I think Powell will be hawkish. He doesn’t want the market to get complacent. He wants the markets to know he still needs to see inflation to reach the 2% target.”

At 2:13PM ET, the rose 131.86 points, or 0.38%, to 34,649.59, the S&P 500 lost 3.98 points, or 0.09%, to 4,439.97 and the dropped 56.88 points, or 0.42%, to 13,621.30.