The Federal Reserve raised interest rates by a quarter of a percentage point on Wednesday for the first time since July 2023, bringing it to a range of 3.75% to 4%.
Unified Decision Making
This decision was made unanimously, and the Federal Reserve also indicated that another increase may occur before the end of the current year.
Initially, the markets reacted calmly to this move, but after the speech by Kevin Warsh, the Federal Reserve Chair, at the press conference following the meeting, stocks fell sharply.
Stock Market Decline
Warsh stated that inflation remains "very high" and summer data does not indicate meaningful improvement in underlying trends. His remarks were perceived as more hawkish than the markets had anticipated.
The Dow Jones index fell by 631 points, or 1.21%, to 51,461.90. Goldman Sachs experienced a larger decline among Dow companies.
The S&P 500 also dropped 0.45% to 7,551.81, while the Nasdaq Composite remained nearly unchanged, declining only 0.01% to 25,978.42.
Shares of major banks fell due to concerns that the interest rate hike could reduce lending and impact economic growth. Bank of America and Wells Fargo each dropped nearly 3%, while Goldman Sachs and American Express fell close to 4%.
The yield on the 10-year Treasury returned above 5%, a level considered a key psychological threshold for investors. Art Hogan from B. Riley Wealth described this move as a potential "barrier" for the markets in the short term.
Diesel prices in the United States reached $6 per gallon, driven by supply constraints related to the wars in Ukraine and Iran. Crude oil prices also remained above $100 per barrel.
A drop in oil prices the following day provided some relief to the markets. Reports indicated that U.S. officials had secret negotiations with the Houthi group in Yemen in Oman. The Houthis stated they have no plans to attack American or Israeli ships.
Reports also suggested that Saudi Arabia might restart a key pipeline at half capacity, alleviating some supply concerns.
Intel's stock rose 4% following news that the company is negotiating with SK Hynix to manufacture semiconductors in the United States, helping to limit the Nasdaq index's losses.
U.S. stock futures rose on Thursday morning. S&P 500 futures increased by 0.68%, Nasdaq futures by 0.7%, and Dow futures by 0.7% to reach 52,284 points.
Snap's stock also rose 2.5% in pre-market trading after the company announced a partnership with Nvidia, Amazon, and Salesforce to provide augmented reality glasses to corporate customers.
