U.S. stocks on Wednesday extended their losses, following Federal Reserve chair Jerome Powell’s comments at a post-monetary policy decision press conference in which he pushed back against expectations of interest rate cuts.
Powell’s remarks came after the central bank kept interest rates unchanged, as widely expected. However, the Fed’s policy decision statement also indicated that it needs to see more headway in terms of inflation and that it does not think it will be appropriate to cut rates until such progress occurs.
Before the Fed decision and Powell’s conference, Wall Street had been weighed down by a slide in megacap technology stocks. Meanwhile, Treasury yields had retreated as traders snapped up bonds following weak economic data.
Into the final hour of trading, the tech-heavy Nasdaq Composite (COMP.IND) had retreated 1.79% to 15,232.27 points. Google-parent Alphabet (GOOG) (GOOGL) dragged down the index, slipping more than 6% after its quarterly ad-sales revenue fell short of expectations. Advanced Micro Devices (AMD) was another notable loser, after the chip designer issued disappointing guidance.
The benchmark S&P 500 (SP500) was down 1.26% to 4,862.94 points. The blue-chip Dow (DJI) was lower by 0.50% to 38,274.75 points. Losses in the index were capped by a jump in shares of Boeing (BA). Investors appeared to look past the top planemaker’s guidance suspension and focus on its quarterly top and bottom line beat.
Of the 11 S&P sectors, eight were in the red, with Communication Services leading the losers. Real Estate topped the three gainers.
The Fed kept its key policy rate at a 22-year high of 5.25%-5.50%. However, it made some significant changes to the monetary policy statement.
“The (FOMC) does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the Fed said.
“Rates unchanged … FOMC statement gets a big rewrite … Tightening bias gone, but in a way that says a cut isn’t necessarily imminent,” the Wall Street Journal’s Fed watcher Nick Timiraos said on X (formerly Twitter).
After the decision, Fed chief Powell took center stage. Though he struck a slightly more hopeful tone than the central bank’s policy statement, he reiterated that policymakers were still not confident enough in terms of bringing inflation down to outright say that interest rate cuts are coming.
Powell also said that it was likely that rate cuts would come at some point this year, but he threw water on hopes that the cut would come as soon as March’s monetary policy meeting. Moreover, he declined to say that the economy had achieved a soft landing.
“They’ll cut in May, after the Q1 (employment cost index) confirms that wage growth is reaching a pace consistent with 2% inflation in the medium term. Nearly there now, but they want to be sure,” Pantheon Macro’s Ian Shepherdson said on X.
One of the other notable stories on Wednesday was the outsized move in U.S. Treasury yields, which fell post economic data that showed the sort of weak trends and fall in inflationary pressures that the Fed wants to see. Before the opening bell, ADP’s latest jobs report showed that private sector employment in January rose at a lesser-than-anticipated rate. Then, the employment cost index for Q4 came in, increasing at a lower-than-expected clip. Finally, Chicago PMI unexpectedly edged down in January.
After the Fed decision and Powell comments, yields moved slightly higher. The longer-end 30-year yield (US30Y) was now down 4 basis points to 4.23%, while the 10-year yield (US10Y) was down 7 basis points to 3.99%. The shorter-end more rate-sensitive 2-year yield (US2Y) was down 9 basis points to 4.26%.
See live data on how Treasury yields are doing across the curve at the Seeking Alpha bond page.
Also of note was the U.S. Treasury’s quarterly refunding announcement. The department said it would boost its quarterly debt sales, while suggesting that no more increases are likely until next year.