U.S. stocks slid in volatile trading Wednesday afternoon following a move by the Federal Reserve to raise its benchmark policy rate by 75 basis points for a fourth straight time — on par with market expectations — and remarks by Chair Jerome Powell indicating the U.S. central bank was unlikely to shift on policy anytime soon.
Stocks initially rose following the announcement but lost momentum after Powell in his post-meeting press conference refuted the idea of a policy pivot in the near future, asserting it is “premature” to think about a pause on rate hikes. Powell said the Fed still had a “ways to go” and suggested that “the ultimate level of interest rates will be higher than previously expected.”
“The November FOMC meeting is not about the November policy rate decision,” Bank of America analysts led by Michael Gapen said in a recent note to clients. “Instead, the meeting is about future policy rate guidance and what to expect in December and beyond.”
Luke Bartholomew, senior economist at abrdn, said in a note that new references by the Fed to monetary lags underscores concerns that the full impacts of aggressive tightening that has already occurred this year has yet to be fully felt by the economy.
“The trick for the Fed is to acknowledge these concerns without giving markets permission to ease fiscal policy,” he said. “We continue to think that this balancing act will prove too difficult for the Fed to manage, and that this tightening cycle is very likely to end in a recession.”
Investors were hoping for signals from the central bank on a potential easing in monetary plans, which would serve as a tailwind for the major indexes after they closed last month higher on expectations of a policy pivot. But Powell pushed back against the notion that a shift in the Fed’s path is imminent, with inflation and payrolls still elevated.
“As of now, the inflation and labor market criteria have not been met, so Mr. Powell can’t pre-announce any intention to shift to slower rate increases without contradicting what he said just six weeks ago,” Pantheon Economics Chief Economist Ian Shepherdson said in emailed comments. “Evidence of fading pressure in the pipeline is abundant, but it is yet to hit the numbers which the Fed Chair has said clearly on multiple occasions matter most, namely, the actual core inflation data.”
On the economic data front, U.S. private payrolls saw an unexpected increase in October, per the ADP’s national employment report, which serves as an imperfect curtain-raiser for the government’s monthly jobs report due out Friday. Wednesday data suggests the labor market remains tight despite the Fed’s efforts to tamp down growth in its fight against inflation, suggesting aggressive rate hikes may continue. Indeed, Powell on Wednesday said the central bank still saw signs of an overheated labor market.
And in corporate news, shares of Estée Lauder (EL) sank more than 8% after the company slashed its full-year forecast. The cosmetics maker cited currency headwinds, lockdowns in China, and some U.S. retailers taking its cosmetics and fragrances off of their shelves amid worries of slowing demand.
Meanwhile, Advanced Micro Devices (AMD) shares gained 1.7% after the chipmaker reported better-than-feared earnings results, even as fourth quarter revenue guidance fell short of Wall Street estimates.
Tinder, Hinge, and OkCupid owner Match Group (MTCH) shares advanced 4.2% after financials showed revenue that beat analysts’ estimates and the company vowed to control costs to prepare for a dimmed economic expectations.
Mondelez International (MDLZ) shares advanced 1.2% in after the Oreo-maker lifted its full-year outlook on sales and profit and indicated shoppers have continued to indulge on snacks and beverages despite inflation’s pinch.
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc