US Fed Decision Impact: S&P500, Nasdaq edge lower after FOMC hits pause on rates; signals 2 small hikes by year-end

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

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US Fed’s decision broke a streak of 10 straight Fed meetings in which the central bank lifted interest rates in response to elevated inflation. The US dollar also declined but edged higher from four-week lows, after the Federal Reserve meeting outcome. 

The dollar index was last down 0.2 per cent at 103.12, after hitting four-week lows earlier in the session. The euro pared gains and was last traded at $1.0822, up 0.3 per cent. Against the yen, the dollar fell 0.4 per cent to 139.735.

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 per cent from 3.77 per cent just before the Fed’s announcement. It was at 3.82 per cent late Tuesday. That yield helps set rates for mortgages and other important loans.

According to data released on July 13, US consumer price inflation (CPI) jumped 4.0 percent from a year ago in May, less than half of a recent peak level but still well above the Fed’s two percent target. A note from High Frequency Economics characterized Wednesday’s decision as a “hawkish pause.”

“Net, no surprises on rates at today’s (Fed) meeting,” the note said. “But updated projections signal that no change in policy today does not mean an end of the rate hiking cycle.”

Updated: 15 Jun 2023, 12:51 AM IST