Stock futures fall slightly after rally as traders digest Fed decision

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U.S. stock futures opened slightly lower on Wednesday night after a rally on Wall Street, when many investors breathed a sigh of relief that the Federal Reserve should not raise interest rates even further. aggressively in the coming months.

Contracts on the S&P 500 fell. Earlier, the blue-chip index posted its best single-session gain since May 2020, up 2.99%. The Nasdaq Composite jumped 3.2% and the Dow Jones added more than 900 points, or 2.8%.

The jump came on the heels of the Federal Reserve’s first half-point rate hike since 2000, as the central bank took a notable step to tackle inflation which is currently at its highest rates. for 40 years. The central bank also announced plans to begin removing assets from its $9 trillion balance sheet from June 1. The pace of this announced balance sheet reduction largely matched Wall Street’s expectations ahead of Wednesday’s Fed statement.

Crucially, during his press conference on Thursday, Fed Chairman Jerome Powell suggested that the central bank was not currently discussing plans to raise interest rates by 75 basis points in the near term. Some feared that such a decision would produce too strong a jolt to the economy which was already showing signs of slowing down. Still, Powell suggested there was “a general feeling within the committee that additional 50 basis point increases should be on the table at the next two meetings.”

“Markets got what they were asking for today as the Fed made a 50 basis point hike in the policy rate. With few signs of inflation slowing, the Fed aims to bring the rate director to a more neutral level in a relatively short period of time,” Chris Ripley, senior investment strategist at Allianz Investment Management, wrote in an email. market expectations are already taken into account.

But even in the absence of oversized 75 basis point rate hikes, the Fed’s path to raising interest rates from ultra-low levels and embarking on quantitative tightening still poses a risk to the economic growth, as the markets have become accustomed to the central bank’s accommodating monetary policies. during the pandemic. Powell himself recognized that some trade-off would take place between reducing inflation and maintaining economic activity.

“There may be some pain associated with going back to that, but the big pain is not dealing with inflation and allowing it to take root,” Powell said at his press conference.

Others have also pointed to these risks.

“In all policy action there are negative consequences, which hopefully are mitigated and less impactful than the problem that is being addressed and today that problem is inflation,” Rick wrote. Rieder, BlackRock’s chief investment officer for global fixed income, in an “The consequences we risk having from tightening policy are a potential recession, potential job and wage losses, and financial conditions that are clearly more stringent measures that will weigh on virtually all financial markets.”

“Many factors are beyond the Fed’s control (supply chain disruptions and geopolitics, for example), but we will be closely monitoring the impact of the Fed’s tightening financial conditions on the broader economy and financial levels. jobs, which are very strong today. but can clearly soften alongside aggressive inflation-fighting monetary policy,” Rieder added.

6:01 p.m. ET Wednesday: Stock futures open lower

Here’s where the markets were trading Wednesday night:

  • S&P 500 Futures Contracts (ES=F): -6 points (-0.14%) to 4,289.25

  • Dow futures (JM=F): -40 points (-0.12%) to 33,929.00

  • Nasdaq futures contracts (NQ=F): -20.5 points (-0.15%) to 13,510.75

A trader works on the floor of the New York Stock Exchange NYSE in New York, U.S., April 26, 2022. U.S. stocks plunged on Tuesday with the tech-heavy Nasdaq closing down nearly 4%, as the sell-off intensified on Wall Street. The Dow Jones Industrial Average fell 809.28 points, or 2.38%, to 33,240.18. The S&P 500 fell 120.92 points, or 2.81%, to 4,175.20. The Nasdaq Composite Index lost 514.11 points, or 3.95%, to 12,490.74. (Photo by Michael Nagle/Xinhua via Getty Images)

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.

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