U.S. stocks closed lower on Wednesday as Federal Reserve Chair Jerome Powell's comments on interest rate hikes left investors uncertain about the central bank's next steps. After the Fed's decision to increase interest rates by a quarter of a percentage point, market gains were reversed following Powell's statements.
Interest Rates Increased, But Uncertainty Remains
The unanimous decision raised the U.S. central bank's benchmark overnight interest rate to 5.00%-5.25%, marking the 10th consecutive increase since March 2022. Despite the rate hike, Powell said it was too early to determine if the rate hike cycle has ended, as inflation remains too high.
Balancing Inflation Fight and Soft Landing
Michael Arone, Chief Investment Strategist at State Street Global Advisors, said the Fed is trying to balance its inflation-fighting credibility while engineering a soft landing. Investors were eager for any indication of whether Wednesday's increase would be the last hike for the time being.
Stock Market Indices Reflect Investor Anxiety
Preliminary data showed the S&P 500 losing 27.65 points (0.67%) to close at 4,091.93, the Nasdaq Composite dropping 50.62 points (0.46%) to 12,025.33, and the Dow Jones Industrial Average falling 261.10 points (0.78%) to 33,423.43. According to Alan Lancz, president of an investment advisory firm, investors still need to receive a clear indication of the Fed's plans.
Fears of Higher Rates Causing Recession
Investors are concerned that higher interest rates may eventually push the economy into a recession. Recent data indicated that U.S. private employers increased hiring in April, but labor market growth showed signs of slowing due to multiple rate hikes.
U.S. Services Sector Growth and Inflation Concerns
A report revealed steady growth in the U.S. services sector for April, but higher input prices suggested that inflation could remain elevated for some time. Advanced Micro Devices shares fell after the chipmaker projected lower-than-expected quarterly sales due to a weak PC market.