Fed's Guidance on Policy Tightening Amid Weakening Economy Keeps US Equities on Tenterhooks

US equity indexes fell as investors sought to understand how the Federal Reserve sees its long-term path of interest rates evolving through a weakening economy.

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The Dow Jones Industrial Average declined 1% to 33,733.1, with the S&P 500 down 0.5% to 4,054.3 and the Nasdaq Composite 0.3% lower at 11,545.3. All sectors traded lower, with energy and materials among the steepest decliners intraday.


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While the Fed is highly likely to further reduce the pace of interest-rate hikes to 25 basis points, after slowing to 50 basis points from 75 basis points in December, the central bank will probably signal the need for “additional policy support removal” as inflation remains stubbornly elevated, according to a note from Stifel Wednesday. The Fed will announce its policy decision later on Wednesday.

Reinstating price stability is the primary goal of the Federal Open Market Committee despite temporary pain inflicted on households and businesses, Stifel cited Fed Chair Jerome Powell as saying after the policy meeting in December.

That message will be “expectedly reiterated again today,” Stifel Chief Economist Lindsey Piegza said. “At the same time, Powell is likely to be careful not to commit to a particular pathway or a timeline for policy, emphasizing that policy decisions will be driven by the data, and in particular, the inflation data.”

The Institute for Supply Management’s US manufacturing index fell to 47.4 in January from 48.4 in December, compared with 48 expected in a survey compiled by Bloomberg. The latest reading is the lowest since May 2020, a note from Jefferies said Wednesday. It is also the third straight month under 50, or contraction territory, following a 29-month streak of expansion.

Meanwhile, the employment index in the ISM data remained above breakeven, though it slipped to 50.6 from 50.8.

“The details of the report tell a similar story to what we have seen in a number of other data sets, which is that manufacturers are seeing a drop off in business, and the outlook is weakening, but they are doing everything they can to maintain headcount given the lack of labor supply,” Jefferies economists Thomas Simons and Aneta Markowska said in the note.

US private employment rose by 106,000 in January but lagged the upwardly revised 253,000 increase in December, according to ADP’s National Employment Report. That print missed the consensus on Econoday for a 158,000 gain. “Employment was soft during our Jan. 12 reference week as the US was hit with extreme weather,” the report said.

The US 10-year yield dropped 6.8 basis points to 3.46% intraday.

West Texas Intermediate crude oil slumped 3.4% to $76.18 intraday.

In company news, Electronic Arts (EA) subsidiary Respawn Entertainment said it is shutting down Apex Legends mobile game in all regions, effective May 1, after falling short of its bar for quality. Barclays, UBS, and Goldman Sachs were among the investment banks to cut the company’s share-price target. Electronic Arts sank 12% intraday, among the worst performers on the S&P 500 and the Nasdaq.

Amgen (AMGN) reported lower fourth-quarter results as sales and earnings fell year over year. Shares declined 4.2% intraday, among the steepest decliners on the Nasdaq and the Dow.

Gold fell 0.3% to $1,940.12, and silver dropped 1.4% to $23.51 intraday.

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