Stocks slide, US yields rise after hawkish Fed stance

Once again you can count the clock by the Fed as it was just around 2:30 p.m. that all the indexes took a big dive, which was likely right after the unexpected Fed announcement that policy would remain tight through next year and that there would also likely be another hike before the end of this year. The Fed remains committed to a 2% inflation target and the forecast not particularly encouraging as the Summary Economic Projections have PCE going to 3.3% vs a prior forecast of 3.2%.  They are leaving rates higher for longer to make sure to slay the inflation dragon. 

As today’s expert put it, “The Fed is trying to send as hawkish a signal as it possibly can. It’s a question of whether the markets will listen.”  Put another way, “It’s really the economy that matters. If the economy starts to soften, I don’t think these projections will actually hold up.”  The Fed is only the first of several central banks that will be making policy announcements this week.  Coming soon – Sweden, Switzerland, Norway, Britain and Japan.  Volume remains below average at 9.8 billion. 

Stocks slide, US yields rise after hawkish Fed stance

By Herbert Lash

Wed September 20, 2023  5:03 PM

DJ: 34,517.73  -106.57         NAS: 13,678.19  -32.05         S&P: 4,443.95  -9.58        9/19

DJ: 34,440.88  -76.85           NAS: 13,469.13  -209.06       S&P: 4,402.20  -41.75      9/20

NEW YORK, Sept 20 (Reuters) - A gauge of global stocks tumbled and Treasury yields shot up on Wednesday after the U.S. Federal Reserve projected another rate hike by year end and much tighter monetary policy through 2024 than previously expected to fight still too high inflation.  The U.S. central bank held interest rates steady as expected at the end of a two-day policy meeting, but the rate-setting Federal Open Market Committee said "inflation remains elevated" and Fed Chair Jerome Powell said the Fed's job is to lower it.

"We are committed to achieving and sustaining sufficiently restrictive policy to bring inflation down to 2% over time," Powell said at a press conference, adding that reducing inflation is likely to require a period of below trend growth.  Fed officials now see the personal consumption expenditures price index at 3.3% at year end, up from June's forecast of 3.2%, and its overnight lending rate to be 5.1% at the end of 2024, about 50 basis points higher than futures have projected.  "The Fed is trying to send as hawkish a signal as it possibly can. It's just a question of whether the markets will listen to them without taking them with a grain of salt," said Gennadiy Goldberg, head of U.S. interest rate strategy at TD Securities in New York.  "They're talking about higher rates for longer, but it's really the economy that matters. And if the economy starts to soften, I don't think these dot plot projections will actually hold up."

The yield on two-year Treasuries , which reflect interest rate expectations, hit 17-year highs at 5.178% as futures priced in the Fed's overnight rate staying above 5% through September 2024 - further out than previously projected.  The yield on the benchmark 10-year note hit 4.339%, the highest since late 2007 as the yield curve between two- and 10-year notes remains firmly inverted in a harbinger of a recession ahead.

MSCI's gauge of stocks across the globe (.MIWD00000PUS) closed down 0.49% after the major U.S. stock indices initially see-sawed on the Fed's new projections before closing lower.  "Right now the message is we're going to leave rates higher for longer to make sure we slay the inflation dragon. That means less rate cuts in 2024," said Anthony Saglimbene, chief market strategist at Ameriprise Financial in Troy, Michigan.  "This last leg might be a little bit more difficult, and so they're going have to navigate the message around staying higher for longer while trying to engineer that soft landing." 

The Dow Jones Industrial Average (.DJI) fell 0.22%, the S&P 500 (.SPX) lost 0.94% and the Nasdaq Composite (.IXIC) dropped 1.53%.  Earlier in Europe, the pan-regional STOXX 600 index (.STOXX) rose 0.91%, while MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 0.5% and Japan's Nikkei (.N225) fell 0.7%. 

The Fed leads a week jammed with key central bank meetings, with policy announcements in Sweden, Switzerland, Norway, Britain and Japan all due later this week. 

Per the CBOE, volume came in at 9.8 billion.