New York – Investors concerned about slowing economic growth sent stocks sharply lower Tuesday after the Federal Reserve said it would continue raising interest rates despite Wall Street’s worries about the economic impact of Hurricane Katrina.
While some investors had hoped for a pause in rate hikes after the hurricane, the Fed – concerned about high oil prices and their potential to spark inflation – raised the nation’s benchmark federal funds rate by a quarter point to 3.75 percent. The Fed said the destruction along the Gulf Coast, while hampering economic activity in the short term and pressuring the stock market, did not pose “a more persistent threat” to the overall economy.
“I would read it as a very hawkish statement under the circumstances, barely paying lip service to the potential threat to the economy from Katrina,” said Chris Piros, director of investment strategy for Prudential’s Strategic Investment Research Group. “They’re saying they have an obligation to maintain price stability and fight inflation but no obligation on economic growth or anything else.”
The Dow Jones industrial average fell 76.11, or 0.72 percent, to 10,481.52.
Broader stock indicators also moved lower. The Standard & Poor’s 500 index lost 9.68, or 0.79 percent, to 1,221.34, and the Nasdaq composite index dropped 13.93, or 0.65 percent, to 2,131.33.
The Bloomberg Colorado Index, a price- weighted list of companies with operations in the state, fell 1.66 to 313.90.
Bonds held steady after the Fed decision, with the yield on the 10-year Treasury note unchanged at 4.25 percent from late Monday.
The dollar gained against other major currencies after the Fed’s rate hike was announced. Gold prices were mixed.
Oil prices fell sharply during the session but regained some of the losses as Hurricane Rita strengthened as it passed between Florida and Cuba on an expected path toward the Gulf of Mexico’s oil-production and refining centers. A barrel of light crude settled at $66.23, down $1.16, on the New York Mercantile Exchange after rising more than $4 on Monday.
