Updated at 4:15 pm ET
Stocks finished sharply lower Wednesday as investors reacted to the Federal Reserve's fourth consecutive jumbo rate hike that was muted by the central bank's reference to taking into account the "cumulative" impact of tightening on the broader economy.
Fed Chair Jerome Powell told reporters in Washington that it was "premature" to consider a pause in rate hikes given the elevated levels of inflation.
“It's very premature, in my view, to think about or to be talking about pausing our rate hikes,” Powell said. “We have a ways to go.”
Traders had fully expected the 75 basis point rate hike, a move that lifts the benchmark Fed Funds rate to between 3.75% and 4% — the highest since 2008 — and marks the most aggressive policy tightening from any Federal Reserve since the Paul Volcker era of the early 1980s.
Central banks around the world, in fact, have been following the Fed's lead, with at least 244 different rate hikes put into place this year, a pace of nearly one per trading day, as policymakers fight some of the fastest inflation rates on record while attempting to ensure that a fragile post-pandemic economy doesn't slip back into recession.
That had given rise to bets on a so-called 'pivot' from the Fed, with investors looking for a clear signal that it plans to slow, or perhaps even pause, its relentless rate hike path
Markets are now are largely split as to how the Fed will move when it meets again in December.
The CME Group's FedWatch tool, a real-time indicator for the direction of Fed Fund futures, suggests a 34.8% chance of a 75 basis point hike in December, with bets on either a hold or a 25 basis point hike in February totaling 76.4%.
Headline inflation, however, is still within touching distance of the fastest pace in four decades, personal incomes are also moving higher, and the September JOLTS report suggest some 10.7 million positions remained unfilled, a precursor to faster wage growth over the final months of the year as holiday hiring intensifies.
The Fed said it will "take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments" when assessing future rate hikes.
With a Bank of England rate hike expected tomorrow in London, a key October jobs report slated for Friday and next week's U.S. mid-term elections on Tuesday, market now face an important stretch of five trading days that could determine whether the solid October rally — in the case of the Dow, the best since 1976 — can hold into the end of an otherwise difficult year.
On Wall Street, the S&P 500 finished down 2.32%, while the Dow Jones Industrial Average fell 460 points, 1.41%, to 32,192. The tech-focused Nasdaq lost 3.36%.
In terms of individual stocks, CVS Health (CVS) – Get Free Report closed up 2.3% after it posted better-than-expected third quarter earnings, lifted its full-year profit forecast, and unveiled details of a $5 billion agreement to settle lawsuits linked to the U.S. opioid crisis.
Apple (AAPL) – Get Free Report slipped 3.7% after officials in China ordered a seven-day lockdown around a key iPhone factory amid an ongoing Covid outbreak that could snarl production heading into the crucial holiday season.
Advanced Micro Devices (AMD) – Get Free Report shares slipped 1.7% after the chipmaker posted modestly weaker-than-expected third quarter earnings but noted solid gains in revenues for its gaming and data center businesses that partly offset further weakness expected in demand for personal computing chips.
In overseas markets, the Europe-wide Stoxx 600 up 0.06% in early Frankfurt trading, while London's FTSE 100 fell 0.32%, as traders sifted through another active session of earnings release and braced for the Fed decision after the close of trading.
Overnight in Asia, the region-wide MSCI ex-Japan index was marked 0.8% higher as China stocks continued to rebound on the back of unconfirmed reports of easing lockdown restrictions, while Japan's Nikkei 225 edged 0.05% lower as the government again hinted at potential intervention in foreign exchange markets as the yen holds at near three-decade lows against the U.S. dollar.
Updated at 4:15 pm ET