- The Fed expects a 25 basis point increase this year and a 50 basis point cut in 2024.
- The Fed’s forecast sees inflation approaching target at the end of 2025
- Klaviyo adjusts initial height in its debut
(Reuters) – US stocks fell on Wednesday after the Federal Reserve kept key interest rates unchanged as widely expected, and revised its economic forecasts higher with warnings that the battle against inflation is not over yet.
All three major US stock indexes fell in the wake of the announcement and the accompanying Summary Economic Outlook (SEP), which sees interest rates rise an additional 25 basis points this year, to peak in a range of 5.50%-5.75%.
The SEP forecast also called for a 50 basis point cut in interest rates next year.
“It’s record volatility on a Fed day,” said Ryan Detrick, chief market strategist at Carson Group in Omaha, Nebraska. “However, it was not a really volatile event, because the markets took things seriously.”
“This day has been the focus of attention all month, and now we can get past it,” Dietrick added.
The updated forecast indicates that the target Fed funds rate will fall to 5.1% by the end of next year, and to 3.9% by the end of 2025.
Since the Fed embarked on its current tightening cycle in March, core inflation has slowed. But its slow descent toward the central bank’s 2% target has been slow and uneven.
The central bank expects inflation to fall to 3.3% by the end of the year, and to approach the central bank’s average annual target of 2%.
In the subsequent press conference, Federal Reserve Chairman Jerome Powell tempered the rosy economic outlook with a warning that inflation still had a long way to go before reaching that target.
The Fed wasn’t really rocking the boat. They acknowledged the strength of the economy, which also reduced the number of cuts that were expected next year, meaning a longer hike is likely the path they will continue to follow.
According to preliminary data, the Standard & Poor’s 500 Index (.SPX) lost 42.02 points, or 0.95%, to close at 4,401.93 points, while the Nasdaq Composite Index (.IXIC) lost 209.62 points, or 1.53%, to 13,468.57 points. The Dow Jones Industrial Average fell 78.13 points, or 0.23%, to 34,439.60 points.
Marketing automation company Klaviyo (KVYO.N) rose in its New York Stock Exchange debut, its third recent initial public offering in recent days, following Arm Holdings and Maplebear Inc (CART.O). But stocks pared their gains as the session continued.
“It shows that confidence returns even to have a large IPO,” Detrick said. “It’s a sign that things are getting closer to normal which is essential at this point in the business cycle.”
Maplebear and Arm Holdings lost ground, failing to maintain their strong gains in their debut.
Pinterest (PINS.N) advanced after the photo-sharing company announced a stock buyback of up to $1 billion.
Coty (COTY.N) shares rose after parent company CoverGirl raised its annual core sales forecast.
Steven Kolb reports. Edited by David Gregorio
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