Dow ends volatile day lower as Fed signals likely March rate hike

NEW YORK (AFP) – Wall Street stocks ended mostly lower on Wednesday (Jan 26) after Federal Reserve chairman Jerome Powell signalled an interest rate hike is likely in March amid elevated inflation.

Stocks were solidly positive heading into Powell’s news conference at the conclusion of the central bank’s two-day policy meeting, but then stumbled with the Dow Jones Industrial Average dropping 0.4 per cent to 34,168.09.

The broad-based S&P fell 0.2 per cent to end at 4,349.93, while the tech-rich Nasdaq Composite Index closed essentially flat at 13,542.12.

Powell told reporters the recovery in the world’s largest economy is strong enough that it can handle higher borrowing costs.

“There’s room to raise interest rates without threatening the labour market,” he said, noting the central bank also plans to soon begin to work on reducing its massive bond holdings.

FHN Financial chief economist Chris Low described the news conference as “hawkish” in tone, adding that “while there is nothing explicit suggesting the Fed will tighten faster than communicated previously… there are plenty of hints in that direction.”

US stocks have suffered bruising losses thus far in January due in large part to unease sparked by the Fed’s sharp pivot away from accommodation towards monetary tightening as prices have surged, in part due to global supply snarls.

But Wall Street opened sharply higher on Wednesday following strong results from Microsoft and as some market watchers said the central bank was unlikely to be more hawkish than expected.

Among individual companies, Microsoft jumped 2.9 per cent after it released better-than-expected results on robust demand for digital software.

But Boeing shed 4.8 per cent as it reported a hefty fourth-quarter loss as mounting costs connected to woes besetting the widebody 787 more than offset a boost from the comeback of the 737 Max after a lengthy grounding.

Mattel gained 4.3 per cent after it announced a new licensing agreement with Disney to make dolls and toys connected to the “Princess” and “Frozen” franchises, winning back a contract it had lost to rival Hasbro. Hasbro fell 6.1 per cent.