Interest rates

Stocks close lower ahead of Fed interest rate decision

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TOKYO — Stocks ended broadly lower on Tuesday as Wall Street, increasingly worried about the slowing economy, anticipates a widely expected interest rate hike from the Federal Reserve in its bid to crush inflation. the highest in decades.

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The S&P 500 index fell 1.1% as more than 90% of stocks and all sectors in the benchmark lost ground. The Dow Jones Industrial Average and the Nasdaq composite also fell 1%.

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The selloff came as traders waited to see how much the Fed would hike interest rates at its meeting that ends Wednesday. The central bank is expected to announce a sharp three-quarter point hike in interest rates, its third straight hike. Investors will also be listening closely to Fed Chairman Jerome Powell for any hint of how aggressively the Fed will act from here to bring inflation under control.

“The market is definitely bracing for the worst and you’re seeing some mild selling pressure,” said Paul Kim, CEO of Simplify ETFs.

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The S&P 500 fell 43.96 points to 3,855.93, while the Dow Jones fell 313.45 points to 30,706.23. The Nasdaq lost 109.97 points to close at 11,425.05.

Retailers, technology stocks, healthcare companies and banks were among the highest weightings in the market. Best Buy fell 4.1%, Microsoft fell 0.8%, Abbott Laboratories fell 1.7% and JPMorgan Chase closed down 2%.

US crude oil prices fell 1.5% and weighed on energy stocks. Exxon Mobil fell 0.8%.

Small company stocks fell more than the broader market. The Russell 2000 Index fell 25.34 points, or 1.4%, to 1,787.50.

Bond yields mostly rose slightly. The 10-year Treasury yield, which influences mortgage ratesrose to 3.56% from 3.52% on Monday evening and is trading at its highest levels since 2011.

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The 2-year Treasury yield, which tends to track Fed action expectations, held steady at 3.95%, hovering around its highest levels since 2007.

Stocks fell and Treasury yields rose as the Fed hiked borrowing costs in hopes of curbing the highest inflation in four decades. The central bank’s aggressive rate hikes have left markets jittery, especially as Fed officials say they are determined to keep raising rates until they are sure inflation is under. control.

Powell bluntly warned in a speech last month that rate hikes “would bring pain.”

“He did everything he could to signal that this would be another aggressive move,” said Liz Young, head of investment strategy at SoFi. “He was crystal clear on what they were focused on.”

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The Fed is expected to raise its key short-term rate by a substantial three-quarters point for the third time at its meeting on Wednesday. That would take its benchmark rate, which affects many consumer and business loans, to a range of 3% to 3.25%, the highest level in 14 years, and zero at the start of the year.

If the Fed matches expectations of a three-quarter point increase, it could give stocks a small boost, reflecting traders’ relief that the central bank did not opt ​​for a 1% increase, said Kim.

Beyond that, investors will focus on what Powell has to say, both in the Fed’s latest interest rate policy statement and at an afternoon press conference, to whether the central bank remains primarily focused on reducing inflation, or if there is a hint the Fed is paying more attention to the impact of higher rates on the economy.

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“As long as the Fed sticks to this chicken game and sticks to inflation as its only mandate, the market will continue to fall,” Kim said.

Wall Street fears the rate hikes will go too far in slowing economic growth and pushing the economy into a recession. Those worries have been heightened by data showing the US economy is already slowing and companies warning of the impact of inflation and supply chain issues on their operations.

Ford fell 12.3% for the S&P 500’s biggest drop after cutting its third-quarter profit forecast as a parts shortage will leave it with up to 45,000 unfinished vehicles on its lots at the end of the quarter. September 30. Last week, FedEx and General Electric warned investors of the damage to their operations from inflation.

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The United States is not alone in suffering from runaway inflation or dealing with the impact of efforts to curb high prices.

Sweden’s central bank raised its key rate by one percentage point to 1.75% on Tuesday, catching almost everyone off guard as it strives to bring down inflation measured at 9% in August.

Consumer inflation in Japan jumped in August to 3%, its highest level since November 1991, but well below 8% and above in the United States and Europe. The Bank of Japan is expected to hold a two-day monetary policy meeting later this week, although analysts expect the central bank to stick to its accommodative monetary policy.

Rate decisions from Norway, Switzerland and the Bank of England come next.

European markets mostly fell, while Asian markets gained ground.

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Yuri Kageyama and Matt Ott contributed to this report.

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