Investors pulled their cash out of the stock market yesterday, leaving prices sharply lower after the Federal Reserve confirmed Wall Street's...
NEW YORK — Investors pulled their cash out of the stock market yesterday, leaving prices sharply lower after the Federal Reserve confirmed Wall Street’s fears that inflation poses an increasing threat to the economy.
The Dow Jones industrial average fell 94.88 to 10,470.51, its lowest close since Jan. 28.
Microsoft, one of the 30 Dow stocks, fell 21 cents to close at $23.99 a share. Boeing, also a Dow stock, gained 38 cents to $57.22.
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Broader stock indicators also fell sharply. The Standard & Poor’s 500 index was down 12.07 at 1,171.71, also its worst close since Jan. 28. The Nasdaq composite index lost 18.17 to 1,989.34, falling to its lowest closing level since Nov. 2.
As expected, the Fed’s Open Market Committee raised the nation’s short-term benchmark interest rate by a quarter percentage point to 2.75 percent. In its policy statement, the Fed noted that “pressures on inflation have picked up in recent months,” which analysts said was a sign that inflation could be a growing problem for the economy.
“The Fed conceded that there’s a bit more inflation in the near term than people were expecting to hear about,” said Jack Caffrey, equities strategist at J.P. Morgan Private Bank. “And if you get short-term inflation, there’s the danger of it extending into the long term, and that means higher interest rates and lower multiples for equities.”
Oil prices fell substantially in what traders said was profit-taking ahead of today’s inventory report from the U.S. Energy Department. A barrel of light crude for May delivery settled at $56.03, down $1.43, on the New York Mercantile Exchange.
Bonds also sold off sharply after the Fed’s announcement, with the yield on the 10-year Treasury note rising to 4.62 percent, the highest since late July.
“I think you have people looking at the market and not really knowing how to adjust their portfolios should inflation become a larger issue,” said Sandy Lincoln, chief market strategist at Wayne Hummer Asset Management. “Maybe they’re thinking the right way to transition is to consolidate into cash, so then they can stop, pause, look in all directions and see which way to go. So you see selling in both stocks and bonds today because of that.”
Before the Fed decision, the Labor Department’s Producer Price Index, a key inflation measure, had given Wall Street an early dose of enthusiasm. Wholesale prices climbed 0.4 percent, largely because of high energy prices. With volatile food and energy prices removed, the “core” PPI rose just 0.1 percent, in line with economists expectations.
But given the choice between surprisingly higher interest rates or the Fed’s measured pace, the reprieve from the PPI figure was temporary, as nearly any stance issued by the Fed would have raised the market’s fears.