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Aug. 18, 2022, 4:40 p.m. EDT

U.S. stocks eke out gains as investors digest mixed signals on Fed’s pace of interest rate hikes

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By Isabel Wang and Joseph Adinolfi

U.S. stocks finished slightly higher on Thursday as investors assessed mixed signals from several Federal Reserve officials on the potential pace of interest rate increases on deck for September.

How did stocks trade?

  • S&P 500 /zigman2/quotes/210599714/realtime SPX -0.20% rose 9.70 points, or 0.2%, ending at 4,283.74.

  • Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.14% rose 18.72 points, or less than 0.1%, closing at 33,999.04.

  • Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -0.25% gained 27.22 points, or 0.2%, to finish at 12,965.34.

On Wednesday, the Dow Jones Industrial Average fell 172 points, or 0.5%, to 33980, snapping a five-day winning streak, while the S&P 500 declined 0.7% and the Nasdaq Composite dropped 1.3%.

What drove markets?

Following a sizzling bull run that carried the S&P 500 index up more than 17% from its mid-June lows, U.S. stocks looked to be taking a breather as investors scrutinized the latest update on the Federal Reserve’s plans for tightening monetary policy.

Fed minutes from the July meeting, when the Fed hiked its interest-rate target by 75 basis points for the second month in a row, reinforced the notion that the world’s largest central bank isn’t about to stop hiking interest rates any time soon.

See: Did the stock market ‘misinterpret’ Fed again? What strategists say about the reaction to the July minutes

According to one analyst, resurgent fretting over central bank monetary policy tightening is being used as an excuse for profit-taking.

“After a very strong run for risk assets thanks to a narrative that we might have seen ‘peak inflation,’ Wednesday put a stop to that as multiple headlines came through that poured cold water on the prospect that central banks were about to let up on hiking rates,” said Henry Allen, macro strategist at Deutsche Bank.

See: Federal Reserve officials back moving interest rates higher in order to slow the economy, minutes show

On Thursday, Federal Reserve Bank of St. Louis President James Bullard said he is considering supporting another large rate rise at the central bank’s Sept. 20-21 policy meeting.

“I would lean toward the 75 basis points at this point,” Bullard said in a Wall Street Journal interview . “Again, I think we’ve got relatively good reads on the economy, and we’ve got very high inflation, so I think it would make sense to continue to get the policy rate higher and into restrictive territory.”

However, Kansas City Fed President Esther George struck a more cautious tone as she remains concerned about the inflation outlook. She said how fast rate hikes will happen is something policy makers “will continue to debate,” though the direction is pretty clear. Both Bullard and George are voters this year on the Federal Open Market Committee. 

See: The Fed is not getting cold feet about wrestling inflation to the ground, so stop misreading its minutes

Meanwhile, San Francisco Fed President Mary Daly also said the Fed is trying to achieve a balancing act, not raising its benchmark interest rates by such a small amount so that high inflation rates will persist, but also not pushing policy rates up too high and slowing the economy unnecessarily.

/zigman2/quotes/210599714/realtime
US : S&P US
3,783.28
-7.65 -0.20%
Volume: 2.22B
Oct. 5, 2022 5:03p
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/zigman2/quotes/210598065/realtime
US : Dow Jones Global
30,273.87
-42.45 -0.14%
Volume: 320.97M
Oct. 5, 2022 5:03p
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/zigman2/quotes/210598365/realtime
US : Nasdaq
11,148.64
-27.77 -0.25%
Volume: 4.13B
Oct. 5, 2022 5:16p
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