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June 16, 2021, 4:27 p.m. EDT

Dow books 3-day losing streak after Fed’s Powell delivers slightly ‘hawkish’ update on monetary policy

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By Mark DeCambre and Joy Wiltermuth

U.S. stock indexes closed lower, but off Wednesday’s worst levels, as Wall Street reacted to Federal Reserve Chair Powell’s optimistic tone on the U.S. economic recovery and a slightly “hawkish” policy update that raised inflation forecasts and brought forward the timing of an interest rate rise.

How did stock benchmarks trade?

  • The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.44% fell 265.66 points to end at 34,033.67, off 0.8%, after touching a session low of 33,917.11.

  • The S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.42% shed 22.89 points, or 0.5%, closing at 4,223.70.

  • The Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +0.11% slipped 33.17 points to finish at 14,039.68, after flipping between positive and negative territory.

On Tuesday , the Dow fell 94.42 points, or 0.3%, to 34,299.33; the S&P 500 finished off 8.56 points, or 0.2%, at 4,246.59; the Nasdaq Composite declined 101.29 points, or 0.7%, to 14,072.86.

What drove the market?

Stocks finished lower after the Fed left its easy monetary policy stance unchanged, but signaled the central bank expects to hike rates twice in 2023 , and raised its inflation forecast, as part of its April policy statement update.

The Fed said it would keep its bond purchases unchanged at $80 billion of Treasurys and $40 billion of mortgage-backed securities each month.

Recap : Fed decision day and Powell presser

“At first glance, it is a little bit hawkish,” Zhiwei Ren, portfolio manager of Penn Mutual Asset Management, told MarketWatch, following the central bank’s statement and update.

The Fed also said it would slightly raise the overnight borrowing rate it pays banks and others to park cash temporarily with the central bank, and bumped up the rate it pays on overnight reverse repurchase agreements, a program that has seen a surge in demand recently.

In its statement, the Fed stuck to its guns and said the recent burst of inflation would be transitory. At the same time, it acknowledged that inflation would be much higher this year, raising its forecast for headline PCE inflation to 3%.

Last Thursday’s  consumer-price index report  from the U.S. Labor Department showed that the cost of living surged in May and drove the  pace of inflation  to a 13-year high of 5%, reflecting a broad increase in prices confronting Americans.

Powell, in an afternoon press conference, stressed the need for patience, as the U.S. labor market recovery has gotten a bit sluggish. But he also said improvements in employment should speed ahead into the summer and fall, as the vaccination effort continues and schools and childcare centers reopen.

“It is not a time to reach hard conclusions” Powell said, stressing the unusual nature of the pandemic-induced economic crisis, while also reiterating that any tapering of its asset purchases was “still a ways off” and will remain data dependent.

“The Fed meeting today is a no time like the present to start normalization moment,” said Jamie Cox, Managing Partner for Harris Financial Group in Richmond, Va. “The Fed is in uncharted territory and is playing both sides: sticking with their transitory narrative but addressing inflationary pressures by moving up the timing on fed funds increases. Markets will need a few days to digest this information before settling out.”

/zigman2/quotes/210598065/realtime
US : Dow Jones Global
35,084.53
+153.60 +0.44%
Volume: 223.67M
July 29, 2021 5:13p
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/zigman2/quotes/210599714/realtime
US : S&P US
4,419.15
+18.51 +0.42%
Volume: 2.01B
July 29, 2021 5:13p
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/zigman2/quotes/210598365/realtime
US : Nasdaq
14,778.26
+15.68 +0.11%
Volume: 3.48M
July 29, 2021 5:16p
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