New York – Wall Street ended an uneasy session mostly lower and bond prices tumbled Wednesday after the Federal Reserve suggested it might not be through raising interest rates if they’re needed to fight inflation caused by soaring energy and commodities prices.
The Fed’s decision to boost a key short- term lending rate to 5 percent was widely anticipated. But investors were rattled by the central bank’s accompanying statement, which said more rate hikes could be necessary to contain inflation.
The Fed indicated it would be watching economic data to determine its next step.
Investors had grown hopeful that recent signs of a cooling economy would prompt the Fed to stop lifting rates. However, the prospect of more increases dampened the market’s celebration, and stocks briefly fell.
Ken McCarthy, chief economist for vFinance Investments, said the Fed will probably not raise interest rates at its June meeting to give it more time to assess the economy, adding that the central bank’s stance is ultimately positive for equities in the long term.
“The Fed realizes that the tightening they’ve already done hasn’t had its full impact,” McCarthy said. “The numbers we’re getting now reflect the funds rate at 4 percent. The Fed wants to see the effect of 4.5 percent or 5 percent, and we won’t see that until later this year.”
Bonds, which have been plagued by rising interest rates, sold off their earlier gains following the Fed’s statement. The yield on the 10-year Treasury note had fallen to 5.09 percent early in the session but recently was flat at 5.13 percent.
At the close, the Dow rose 2.88, or 0.02 percent, to 11,646.65. The Dow is less than 80 points from its best-ever close of 11,722.98, reached Jan. 14, 2000.
Broader stock indicators declined. The Standard & Poor’s 500 index lost 2.29, or 0.17 percent, to 1,322.85, and the Nasdaq composite index sank 17.51, or 0.75 percent, to 2,320.74. The Russell 2000 index of smaller companies lost 4.78, or 0.61 percent, to 775.94.
