Highlights
Stocks lost ground and bond yields rose on Wednesday after a Federal Reserve rate hike and policy announcement that sounded more hawkish than markets expected. The Dow Jones industrial average lost 1.2 percent while the S&P 500 lost 0.5 percent and the Nasdaq was off 0.1 percent. Oil prices declined while the dollar index rallied on the prospect of higher interest rates.
The Federal Reserve’s announcement that it was raising its policy rate by 25 basis points was well expected and didn’t move the market itself. But risk appetite took a hot and bond yields rose on news that the Fed vote to raise rates was 12-0, and as Fed officials penciled in at least one more rate increase this year, something markets feared but did not expect. The market also seized on Fed Chair Kevin Warsh’s stress on inflation worries and his comment that the latest action removes “a dose of accommodation” – as opposed to saying the Fed policy rate was now in restrictive territory.
The rate move followed a retail sales report that was much stronger than expected in August, which suggested consumer spending remains resilient despite falling consumer sentiment. Oil prices may have been lower on the day but they remain elevated and all the news coverage suggests more trouble for oil flows from the Mideast and more energy price increases ahead.