Stock market today: Wall Street drops as Fed signals more painful rate hikes to come

By STAN CHOE
AP Business Writer

NEW YORK (AP) — Stocks are slipping on Wall Street Wednesday after the Federal Reserve hinted it may raise interest rates two more times this year, even if it’s taking a pause for now.

The S&P 500 was 0.5% lower in afternoon trading after losing a modest gain from before the Fed’s announcement. The Dow Jones Industrial Average was down 391 points, or 1.1%, at 33,820, as of 2:22 p.m. Eastern time, while the Nasdaq composite was 0.6% lower.

The Fed closed its latest policy meeting by saying it would hold rates steady, to give more time to see how its fusillade of rate hikes over the last 15 months is affecting the economy. It’s attempting the excruciating balancing act of slowing the economy just enough through rate increases to snuff out high inflation, but not so much as to break the job market and create a recession.

The majority of Fed policy makers also indicated Wednesday that they expect its main interest rate to climb at least 0.50 percentage points by the end of the year. The federal funds rate is already at its highest level since 2007, in a range between 5% and 5.25%.

Most traders on Wall Street had been bracing for maybe just one more hike this year, if any. That’s why the warning from the Fed sent stocks to broad losses.

“To keep the economy from skidding, or screeching, to a halt it only makes sense to take a breather and see how things shake out for a while,” said Brian Jacobsen, chief economist at Annex Wealth Management. “If they do restart their hikes and squeeze in not just one but two hikes this year, then they do risk bigger problems for the economy.”

That surprise indication of two more hikes caused yields in the bond market to immediately erase earlier losses. The 10-year yield rose to 3.82% from 3.77% just before the Fed’s announcement. It was at 3.82% late Tuesday. That yield helps set rates for mortgages and other important loans.

The two-year Treasury yield, which moves more on expectations for the Fed, jumped to 4.74% from 4.67%.

Losses were widespread across the stock market.

Some of the sharpest drops came from several health insurers after UnitedHealth Group flagged how many customers were getting knee procedures and other outpatient services done. That’s something that could raise costs for insurers, and UnitedHealth fell 7.7%. Humana dropped 13.1%.

Stocks of companies that make products used in hip replacements and other health procedures, meanwhile, were at the front of the market. Stryker rose 4.4%, and Edwards Lifesciences gained 3.5%.

Wednesday marked the first time in more than a year where the Fed has not hiked rates at a meeting, after calls for a pause climbed as high rates have already caused damage in several corners of the economy.

Hikes to interest rates take a notoriously long time to take effect, and they can do so in unanticipated ways. Already, they’ve helped lead to three high-profile failures in the U.S. banking system, a monthslong contraction in the manufacturing industry and worries about a possible recession.

But inflation is still too high for comfort. It’s hurting all kinds of households, particularly those with lower incomes.

In stock markets abroad, indexes were modestly higher in Europe and mixed across Asia. Japan’s Nikkei 225 rose 1.5%, continuing a strong run where it’s already jumped more than 28% this year.

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AP Business Writers Matt Ott and Joe McDonald contributed.