Live updates: Stocks sink as Fed hints rate cuts aren't coming soon (2024)

Stocks tumbled Wednesday after Federal Reserve Chair Jerome Powell indicated that officials likely won't start cutting rates at the central bank's next policy meeting, in March.

The Dow closed 318 points, or 0.8% lower. The S&P 500 dropped 1.6% and the Nasdaq Composite fell by 2.2%.

Financial markets currently see about a 34% chance the Fed will lower rates at their March meeting, according to theCME FedWatch tool. That's down from more than 73% just one month ago.

The 10-year US Treasury yield, meanwhile, fell 0.1% to sit at around 4% following the Fed announcement.

Tech stocks also drove the market lower on Wednesday. Shares of Google-parent Alphabet and Microsoft dropped 7.4% and 2.7% respectively. Both companies exceeded analyst expectations for fourth-quarter earnings, but failed to impress Wall Street with a wide enough beat.

The tech behemoths also pulled the rest of the sector down alongside them.

Shares of Apple were down 1.9%, Meta stock fell by 2.5%, Amazon dropped 2.4% and Nvidia was 2% lower.

Apple and Meta will report earnings later this week.

In corporate news, shares of aerospace giant Boeing grew 5.3% after the company beat earnings expectations.

Boeing did not give the financial guidance that it normally provides to investors, nor say when it might be able to provide two new versions of the 737 Max that it has promised to airlines but which have yet to be certified by the Federal Aviation Administration.

This is the busiest week for earnings, with more than 100 companies (or about 40% of index earnings) scheduled to report. Investors are also anticipating the closely watched jobs report for January, due out on Friday morning.

Federal Reserve Chair Jerome Powell told reporters on Wednesday that the central bank probably won't begin cutting interest rates in March.

"Based on the meeting today, I would tell you that I don't think it is likely that the Committee will reach a level of confidence by the time of the March meeting to identify March as the time to do that, but that is to be seen," said Powell. "It is probably not the most likely case, or what we would call the base case."

The Dow was down almost 300 points by late afternoon. The S&P 500 declined 1.5% and the Nasdaq Composite slid 2%.

Traders came into 2024 largely expecting the Fed to begin cutting rates in March, but that optimism waned in January as central bank officials pushed back on that optimism and fresh data indicated that the economy remains resilient.

The Federal Reserve on Wednesday kept interest rates at a 23-year high, and indicated that it is unlikely to begin cutting interest rates in March.

Here's what Wall Street has to say:

Higher levels of productivity seen last year have likely helped slow inflation, Fed Chair Jerome Powell said Wednesday; however, he added, continued strong productivity growth remains to be seen.

“If you look back to the pandemic, you saw a spike in productivity as workers were laid off and activity didn’t decline as fast; then you saw a deep trough of productivity,” he said. “Then you saw high productivity last year in 2023. I think we are basically in the throes of getting through the pandemic economy.”

He added: “The question will be, what is it that has changed?”

Productivity tends to be based on fundamental aspects of the economy, Powell said. The rise in remote work likely isn’t the main cause nor is artificial intelligence – at least in the near-term, he said.

Diane Swonk, chief economist of KPMG, told CNN this week that rising productivity could likely be attributed as a result of the interest rate hikes and the labor market getting back into better balance following the pandemic recovery.

“What we saw as rates went up is that finally workers that were in their jobs got to learn their jobs and get training that had been completely sidelined by the hiring frenzy,” she said. “That helped productivity growth, along with the fact that firms could finally take a breath and leverage the technologies that they so rapidly embraced online.”

Preliminary fourth-quarter productivity data is due out on Thursday from the Bureau of Labor Statistics.

Fed Chair Jerome Powell said Wednesday the US economy has yet to achieve a soft landing, noting that "we still have a ways to go."

"We have not achieved a soft landing yet," Powell said in his post-meeting press conference Wednesday, referring to a scenario in which the economy defeats inflation without triggering a recession. “Certainly, I’m encouraged — and we’re encouraged — by the progress, but we’re not declaring victory at all at this point.”

Although the US economic recovery has far outpaced that of other advanced economies, Powell said there are still several metrics yet to meet the mandate for a soft landing.

Specifically, Powell touched on the following:

While Powell acknowledged that the economy is normalizing in this post-pandemic period, he said there is much that needs to get back into balance.

But overall, "it's a pretty good picture," he said.

Federal Reserve Chair Jerome Powell said he’s confident that inflation is moving toward the central bank’s 2% rate, but the Fed is still waiting for more signals that the time is right to cut rates.

So, what will it take?

Put simply: “We want to see more good data,” Powell said Wednesday. “It is not that we are looking for better data but a continuation of the better data.”

As it stands now, the Fed’s been gifted with several months of solid inflation data, with price hikes moderating near the central bank's target rate.

“That six months of good inflation data, is it sending us a true signal that we are, in fact, on the sustainable path down to 2% inflation,” he said. “The answer will come from some more data that is also good data.”

That being said, if there were to be an unexpected weakening in the labor market – which in many senses is approaching “at or near normal,” – that could influence the Fed to cut rates sooner, he said.

Powell also said he’s keeping a close eye on to what extent goods disinflation (and deflation) continues and whether inflation for services continues to fall. Lower rent costs could help, Powell said.

There's not just one interest rate people care about.

While investors may pay the most attention to the Federal Reserve's target range for the federal funds rate, which influences borrowing costs across the economy, two other types of interest rates, real and neutral, are giving it some competition.

Real interest rates are interest rates that are adjusted for inflation. The term has taken on new significance as central bankers grapple with when to lower interest rates given how much inflation has cooled. The fear is that the real interest rate people are paying is taking too much of a toll on their finances.

Neutral interest rates refer to a hypotheticalGoldilocks interest rate that isn’t so low that it ushers in inflation, yet not so high that it tips the economy into a recession. Theoretically, it exists — but as Fed Chair Jerome Powell said Wednesday, "we don't know with great confidence where the neutral rate of interest is at any given time."

The fear there is that the Fed is keeping rates above or below that perfect rate.

Along with the interest rate decision, the Federal Reserve announced it's changing its policies around trading and investing for its staff.

The changes come after a series of controversial trades two regional Fed presidents made during the pandemic.

The heads of the Boston and Dallas Federal Reserve banks announced early retirements amid criticism of their trades. Both were recently cleared of any legal wrongdoing by the central bank's internal watchdog.

The new rules will require more Fed staff to adhere to "the most stringent restrictions on investment and trading activities." It will set stricter limits on who has access to confidential information pertinent to the Federal Open Market Committee.

Existing policies around trading prohibit senior Fed officials from investing and trading a wide range of securities including individual stocks and bonds and cryptocurrencies.

The most notable addition to the Federal Reserve's policy statement was essentially an outright denial that rate cuts are around the corner.

"In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks," the statement said. "The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent."

After Fed officials penciled in multiple rate cuts for this year at the final meeting of 2023, investors grew increasingly hopeful that the central bank could begin lowering rates as soon as March. That optimism helped the S&P 500 and Dow Jones Industrial Average achieve multiple new record highs.

The statement also added some new language expressing that the risk ofinflation's descent stalling, or even reigniting, with the risk of theFedcausing undue economic harm, have "moved into better balance."

"The economic outlook is uncertain, and the Committee remains highly attentive toinflationrisks," the statement said, which were also new additions.

Even though the latest statement makes a more convincing case for why investors will have to be patient regarding rate cuts, they took the news in strides.

Heading into Fed Chair Jerome Powell's press conference at 2:30 pm ET, markets remained around where they were before the statement was released.

The Dow was down by 0.2%, the S&P 500 was down 1% and the Nasdaq Composite was 1.6% lower.