US stocks fall after Fed hikes rates, signals more to come

By Damian J. Troise And Alex Veiga, The Associated Press on December 14, 2022.

NEW YORK – Stocks turned lower on Wall Street and Treasury yields rose in afternoon trading Wednesday after the Federal Reserve raised its benchmark interest rate and signaled more hikes ahead.

As expected, the central bank raised its key short-term rate by 0.50 percentage points, marking its seventh hike this year. The latest hike is smaller than the previous four 0.75 percentage point increases and comes a day after an encouraging report showed that inflation in the U.S. slowed in November for a fifth straight month.

Stocks had rallied ahead of the Fed’s afternoon announcement, but shed those early gains. The S&P 500 was down 0.3% as of 2:18 p.m. Eastern. The Dow Jones Industrial Average fell 82 points, or 0.3%, to 34,023, and the Nasdaq was 0.5% lower.

Bond yields, which had been mostly lower before the Fed announcement, also turned higher. The yield on the 10-year Treasury, which influences mortgage rates, rose to 3.53% from 3.50% from late Tuesday. The two-year yield, which more closely tracks expectations for the Fed, rose to 4.28% from 4.22% late Tuesday.

Investors had been hoping that the Fed would ease up on its aggressive interest rate increases as it tries to slow the economy and tame inflation. Other central banks around the world, including the European Central Bank, are also likely to raise their own rates by half a percentage point this week.

On Tuesday, the U.S. government reported that inflation slowed more than economists expected in November. It is another sign that inflation is easing and has given Wall Street hope that the Fed might be able to take its foot off the brakes on the economy sooner than expected and possibly avoid a recession.

Wall Street is also closely watching economic reports on consumer spending and employment, which remain strong. That has made it more difficult for the Fed to tame inflation while also helping to protect the slowing economy from a possible recession.

The U.S. will release its weekly report on unemployment benefits on Thursday, along with retail sales data for November.

Technology stocks, which had led stocks higher in the early going, were among the biggest drags on the market in afternoon trading. Apple fell 1.7%.

Retailers and banks also fell. Best Buy dropped 3.4% and Goldman Sachs slid 1.4%.

Delta Air Lines rose 2.4% after it raised its fourth-quarter financial outlook and issued an optimistic forecast for 2023.