Wall Street stocks fell in late trading on Wednesday, as investors shrugged off the Federal Reserve’s decision to raise interest rates by a quarter of a percentage point amid a banking crisis.
The S&P 500 jumped early after the results were announced, before falling sharply in late trading, down 1.65 percent for the day. Trading was muted in the morning as investors awaited the central bank’s decision.
The jitters in the stock market on Wednesday reflected the challenge the central bank faces: Getting tough on stubborn inflation that has raised prices for households across the United States, while its tool to cool inflation — raising interest rates — has helped. Recent malaise among the nation’s banks.
The central bank initially appeared to be threading the needle, and stock prices rose as the decision was announced. But as trading continued, Federal Reserve Chairman Jerome H. Powell responded to reporters’ questions by saying that some investors were not satisfied that the Fed’s chairman had not done enough to assuage concerns about recent bank failures. weeks.
“It’s making the same policy error that the feds have routinely made throughout their history,” said Dan Calcagni, chief investment officer at wealth manager Mercer Advisors. “I think the Fed is slow to react to significant pressure on the banking system.”
In the bond market, the two-year Treasury yield, which is sensitive to changes in interest rates, fell sharply below 4 percent amid bets that Wednesday’s interest-rate hike could be the Fed’s last.
The central bank has been raising interest rates to control the economy and reduce inflation. While this has been part of an expansion in the banking sector, the strain on the financial system may now put more pressure on the economy, and the central bank is removing some of the need to raise interest rates regularly.
“This is seen as the last or close to the last hike,” said Jorge Goncalves, head of US macro strategy at MUFG Securities. “They were going to be very aggressive on inflation, but the banking crisis has done that to them.”
The uncertainty, which prompted intervention by regulators around the world and violent swings in financial markets, left investors, analysts and economists unable to guess what the central bank might do on Wednesday — and the uncertainty was reflected in trading on the stock. Last two weeks.
In general, the central bank wants to set investors’ expectations, orient them to the potential consequences of rate decisions, and limit potential market fallout from a surprise move. But Mr. Powell’s last public comments came days before Silicon Valley took control of the bank, with the Fed chairman testifying to Congress that he was ready to raise interest rates quickly in response to data that inflation was stubbornly embedded in the economy.
Mr. As the economic backdrop has changed sharply since Powell’s comments, investors have been left in the dark about what the central bank will do — whether it will stick to previous plans or adapt to new circumstances.
After the banking turmoil that reverberated around the world, many began to believe that the central bank might leave rates unchanged instead.
Los Angeles lender Pacwest, which has joined other regional banks under pressure, said Wednesday it has tapped emergency cash after a 20 percent drop in its deposits since the start of the year.
The announcement sent PacWest’s stock price down 17 percent for the day, dragging down the stock prices of other regional banks as well. The moves illustrate the volatile backdrop ahead of the central bank’s decision to raise interest rates.
“I think the central bank is underperforming,” Mr. Calcagni said. “I think there’s more stress on the financial system than the Fed thinks.”