Dow Jones, S&P 500 gyrate after Fed keeps rates steady, warns of higher for longer

Wall Street oscillated after the US Federal Reserve held key interest rates unchanged as widely expected, and revised economic projections higher, even as Chairman Powell warned the battle against inflation was far from over.

All three major US stock indexes whipsawed in the wake of announcement and the accompanying Summary Economic Projections (SEP) and dot plot, which sees an additional 25 basis point rate hike this year, peaking in the 5.50 per cent-5.75 per cent range.

The projections also called for 50 basis points of rate cuts next year.

“There were no surprises,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York. “(The Fed) sees one more rate hike…and sees interest rates remaining elevated a bit longer than previously stated, and that’s cutting into the market.”

The updated projections see the Fed funds target rate edging down to 5.1 per cent by the end of next year, and to 3.9 per cent by the end of 2025.

At 2:48 p.m. ET, the Dow Jones Industrial Average rose 148.43 points, or 0.43 per cent, to 34,666.16, and the Nasdaq Composite dropped 49.03 points, or 0.36 per cent, to 13,629.15.

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 target has been slow and uneven.

The SEP forecasts inflation to drop to 3.3 per cent by year-end, and to approach the central bank’s average annual 2 per cent target.

At the subsequent press conference, Fed Chairman Jerome Powell tempered rosier economic projections with a warning that inflation has a long way to go before reaching that target.

Powell “doesn’t want the market to get complacent. He wants the markets to know he still needs to see inflation to reach the 2 per cent target,” Cardillo added.

Among the 11 major sectors of the S&P 500, interest rate sensitive communication services and technology suffering the largest percentage losses.

Marketing automation company Klaviyo jumped 13.5 per cent in its debut on the New York Stock Exchange, the third recent initial public offering in recent days, following Arm Holdings and Maplebear Inc.

Maplebear was last down 5.7 per cent, on track to join other new entrants in failing to hold on to their strong gains on debut. Arm Holdings was down 3.9 per cent.

Pinterest added 5.0 per cent after the image-sharing firm announced a share buyback of up to $1 billion.

Coty gained 5.1 per cent after the CoverGirl parent hiked its annual core sales forecast.

Advancing issues outnumbered declining ones on the NYSE by a 2.53-to-1 ratio; on Nasdaq, a 1.38-to-1 ratio favored advancers.

The S&P 500 posted 14 new 52-week highs and 6 new lows; the Nasdaq Composite recorded 38 new highs and 187 new lows.