NEW YORK — Wall Street pulled back Tuesday as investors uneasy after a drop in consumer confidence traded cautiously ahead of the Federal Reserve’s rate decision.
After the Fed’s half-point reduction in September, most investors expect the central bank to deliver a quarter-point cut at the conclusion of its two-day meeting today.
But inflation remains a threat. Crude- oil prices fell Tuesday but only after hitting a record a day earlier, and the dollar has been tumbling. So a rate cut – much less additional decreases in the coming months – is not a given.
Some on Wall Street fear that economic growth could halt if rates aren’t lowered, given the troubles in housing and credit. The statement the Fed issues alongside its rate decision will be closely read for clues about future moves.
“We don’t think the economy’s about to slip into recession. The corporate portion of the economy is still in pretty good shape,” said Phil Orlando, chief equity- market strategist at Federated Investors. “However, should the Fed choose not to cut any more, and the economy continue to slip, that potentially could raise some concerns for us.”
Most earnings have been coming in better than expected over the past few weeks, particularly in the technology sector. But consumer spending, the key driver of the economy, appears to be flagging.
Following last week’s news of a significant decline in existing-home sales and Standard & Poor’s report Tuesday of home prices sinking further, the Conference Board said its index of consumer confidence fell to its lowest level in two years in October.
The Dow Jones industrial average fell 77.79, or 0.56 percent, to 13,792.47.
Broader stock indicators were mixed. The S&P 500 index fell 9.96, or 0.65 percent, to 1,531.02, while the Nasdaq composite index fell 0.73, or 0.03 percent, to 2,816.71.
The market remains nervous that even if the Fed decreases the target fed funds rate by a quarter-point or half-point, the move may not end up helping the credit and housing markets. It’s not the price of borrowing that’s deterring investors, many say; demand has waned because of worries about the quality of the underlying assets.
Furthermore, the central bank must walk a narrow line between keeping investors calm and acknowledging the problems out there – particularly for the banks and brokerages that could see more big losses if portions of the credit market, like asset-backed commercial paper, don’t improve.
“Providing the superficial image of stability when everybody realizes things aren’t normal just doesn’t work,” said Axel Merk, manager of the Merk Hard Currency Fund.
