(AP) – U.S. stocks fell further from their record highs and bond yields rose on Wednesday after Federal Reserve officials signaled they may start raising interest rates by the end of 2023, earlier than they had previously thought.
The ultra-low rate policy has been helping the economy recover but has also coincided with more signs of inflation emerging, something that higher rates can mitigate.
The S&P 500 extended its losses to 0.9% after the Fed released its latest policy statement and projections, while the yield on the 10-year Treasury note rose to 1.54% from 1.48%.
THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.
Stocks edged lower Wednesday as investors wait to hear from the Federal Reserve on issues related to the economy and inflation.
The S&P 500 index was down 0.2% as of 12:38 p.m. Eastern. The Dow Jones Industrial Average was down 92 points, or 0.3%, to 34,206 and the Nasdaq Composite was down 0.2%.
Banks, communications companies and industrial stocks weighed down the broader market, while health care companies made modest gains. The S&P 500 is sitting just below a record high set on Monday. Trading remains choppy as investors gauge how to position themselves amid the economic recovery and rising inflation.
“There’s not a lot of volatility right now, but we’ve had shallow ups and downs,” said Veronica Willis, investment strategy analyst at Wells Fargo Investment Institute. “It’s good to focus on the underlying state of the economy and how that could drive equities going forward.”
The Federal Reserve will end a two-day policy meeting later in the day. While investors do not expect the nation’s central bank to increase interest rates from their near-zero levels, most are looking for some sort of guidance from the Fed on inflation.
Prices for many basic materials have risen sharply this year, including copper, oil and lumber, as demand for those materials increases as the U.S. economy recovers from the pandemic. Fed officials have previously said they expect inflation this year to be temporary and largely as a byproduct of economic growth and trillions of dollars of economic stimulus.
Most economists expect the Fed to say again on Wednesday that it sees higher inflation being only temporary, which would allow it to hold steady on its support for markets. But they also say Wednesday afternoon could offer the first sign that the Fed is mulling when to start slowing its purchases of bonds.
The yield on the benchmark 10-year Treasury note fell slightly to 1.49% from 1.50% the day before.
In individual stocks, shares of Oracle fell 5.3% after the company’s full-year projections came in below analysts’ forecasts. Furniture company La-Z-Boy fell 10.8% after warning investors that supply chain problems and higher materials prices could hurt profit margins.
General Motors rose 1.8% after saying it will raise spending on electric and autonomous vehicles and add two U.S. battery factories.