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Stocks tumble after Fed signals rate hikes are here to stay

Nicole Goodkind

By Paul R. La Monica and Nicole Goodkind, CNN

Updated 5:23 PM EDT, Wed November 2, 2022

Federal Reserve Chairman Jerome Powell speaks at a news conference following a Federal Open Market Committee meeting, Wednesday, Nov. 2, 2022, in Washington.

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Fed's Powell: 'Time for easing rate increases is coming'

2:26 • Source: CNN Business

Federal Reserve Chairman Jerome Powell speaks at a news conference following a Federal Open Market Committee meeting, Wednesday, Nov. 2, 2022, in Washington.

Fed's Powell: 'Time for easing rate increases is coming'

2:26 • CNN Business

What we've covered here

The Federal Reserve hiked its target interest rate by three quarters of a percentage point, as expected.
Chair Jerome Powell said that the Fed could start to dial back rate hikes in future meetings, giving the economy a bit of a breather from punishing interest rate spikes that have slowed hiring – if not inflation.
But stocks plunged after Powell noted rates will rise higher than expected to combat surging prices, dimming Wall Street’s hopes that a slower pace of rate hikes could mean interest rates will soon peak.

24 Posts

Stocks fall on a volatile day as Powell disappoints

From CNN Business' Paul R. La Monica

US stocks sank after Federal Reserve chair Jerome Powell suggested that more big interest rate hikes may be coming, even though the Fed may slow the pace of those increases. That’s raising fears about a possible recession next year.

Powell conceded that the chances of a “soft landing” for the economy are lower now, adding that it’s proven to be more difficult than expected for the Fed to get a handle on inflation.

The Dow ended the day down more than 500 points, or 1.6%.
The S&P 500 sank 2.5%.
The Nasdaq Composite slid 3.4%.

As stocks settle after the trading day, levels might still change slightly.

Stocks fall sharply as the Fed worries Wall Street about higher-than-expected interest rates

From CNN Business' David Goldman

J. David Ake/AP

Wall Street went bananas in October, believing that the Fed was about to pivot from historically high rates hikes to lower hikes to an eventual pause. But Federal Reserve Chairman Jerome Powell threw cold water on those assumptions Wednesday.

Powell said the Fed may indeed slow its pace of rate hikes starting in December – noting that no decision has been made yet. But he also said that the Fed is nowhere near done raising rates. And even if it reduces its next and future rate increases to a half or quarter percentage point instead of three-quarters of a point, it will continue hiking rates for quite some time.

We’re nowhere near a “pause.” So much for the pivot Wall Street had hoped for.

That’s why the October boom has turned into a November bust.

The Dow fell more than 400 points, or 1.1%.

The S&P 500 sank 2.1%.

The Nasdaq Composite was 2.9% lower.

Powell admits soft landing may not happen

From CNN Business' Paul R. La Monica

Federal Reserve chairman Jerome Powell conceded what a lot of Americans already seem to believe. A so-called “soft landing” for the economy, one in which rate hikes do not lead to a recession, may not be in the cards.

Powell said in response to a question at Wednesday’s press conference that the window for a soft landing has “narrowed” but that one is “still possible.”

According to a recent poll for CNN conducted by SSRS, 75% of Americans think the economy is currently in a recession. That’s up from 64% who said so in a poll earlier this summer.

When Powell was asked to clarify why he thought a soft landing may no longer be attainable, his response was not reassuring. He said it was mainly because inflation hasn’t been coming down as fast as the Fed hoped.

The Fed has been raising rates sharply to try and combat inflation. And more rate hikes are likely coming. So the Fed may eventually win the fight against higher prices. But it could come at the expense of the economy.

Jerome Powell worries about eroding trust in the Fed

From CNN Business staff

Jerome Powell during a news conference following a closed two-day meeting of the Federal Open Market Committee on interest rate policy in Washington on November 2.

Jerome Powell during a news conference following a closed two-day meeting of the Federal Open Market Committee on interest rate policy in Washington on November 2.

Elizabeth Frantz/Reuters

After a series of ethics violations among Fed officials, Chair Jerome Powell said he is concerned that the public’s trust in the Fed is eroding.

“The public’s trust is really the Fed’s and any central bank’s most important asset,” Powell said. “Any time one of the policy makers fall short of those rules, it risks to undermine the trust. We take that very seriously.”

Powell said the Federal Open Markets Committee discussed the importance of holding itself to a higher standard when making investments.

“We’ve taken a number of steps. I would just say we do understand how important those issues are,” Powell said. “I would say that our new investment program that we have is up now and running.”

Powell noted that the most recent ethics violation, committed by Federal Reserve Bank of Atlanta President Raphael Bostic, was uncovered because of new guardrails the Fed put in place.

So much for a Fed rally?

From CNN Business' Paul R. La Monica

Traders work on the floor at the New York Stock Exchange as the Federal Reserve chairman Jerome Powell speaks after announcing a rate increase today.

Traders work on the floor at the New York Stock Exchange as the Federal Reserve chairman Jerome Powell speaks after announcing a rate increase today.

Seth Wenig/AP

Stocks rose shortly after the Federal Reserve rate hike announcement was released at 2 pm ET. The Fed (and Wall Street) should have called it a day at 2:01.

Fed chair Jerome Powell continued to stress in his 2:30 press conference that the central bank will continue to be vigilant about inflation and that more big rate hikes could lie ahead.

Those comments appeared to throw cold water on the notion that the Fed may be about to pivot and slowing its rate hike pace as soon as December. Turns out that the Fed is still worried about surging consumer prices and will be watching all the upcoming reports on inflation like a…hawk.

In other words, the Fed is STILL data dependent. Cue the “Talking Heads.” Same as it ever was.

The Dow was down nearly 50 points, or 0.2%, in late afternoon trading.
The S&P 500 fell 0.8%.
The Nasdaq Composite was down 1.3%.

Expectations for another big rate hike edge lower

From CNN Business' Paul R. La Monica

Is the Federal Reserve going to “pivot” to a slower pace of interest rate hikes in December? The market seems to think so.

According to fed funds futures trading on the CME, the market is now pricing in nearly 60% odds of just a half-point rate increase at the Fed’s December 14 meeting. That would leave rates in a range of 4.25% to 4.5%. Only yesterday, traders were betting on just a 45% chance of a smaller rate hike in December.

The Fed has raised rates by three-quarters of a percentage point at each of its past four meetings. Fed chair Jerome Powell conceded in Wednesday’s press conference that this was a “fast pace,” but he defended the increases as “appropriate” in light of criticism from Democrats in Washington about how higher interest rates would hurt the economy. He added that the Fed has “some ways to go” with rate hikes.

Still, investors had been pricing in a 50% likelihood of a fifth consecutive three-quarters of a point hike in December before Wednesday’s announcement. After the meeting, those odds fell to just 34% Wednesday afternoon.

Jerome Powell: The Fed may slow down rate hikes. But rates will be going up for a long time

From CNN Business staff

Federal Reserve Board Chairman Jerome Powell speaking today during a news conference following a Federal Open Market Committee meeting, at the Federal Reserve Board Building in Washington, DC.

Federal Reserve Board Chairman Jerome Powell speaking today during a news conference following a Federal Open Market Committee meeting, at the Federal Reserve Board Building in Washington, DC.

Mandel Ngan/AFP/Getty Images

Federal Reserve Chairman Jerome Powell said the Fed is more concerned with the appropriate interest rate target for combatting inflation than how quickly it continues to raise rates.

Although Powell opened the door to slowing the Fed’s pace of hikes, perhaps raising rates by a half point in December rather than another three-quarters of a point, he noted that the Fed still has a long way to go before interest rates are sufficiently high to bring inflation down to comfortable levels.

“We think there is some ground to cover before we meet that test,” Powell said. “That’s why we say ongoing rate increases will be appropriate. … We may move to higher levels than we thought.”

Powell reiterated that the Fed is taking into account the fact that it’s flying blind to an extent: The economic impact from monetary policy takes a while to kick in.

“That’s why I’ve said it’s appropriate to slow the pace of increases,” Powell said. “So that time is coming. And it may come as soon as the next meeting or the one after that. No decision has been made.”

But Powell made clear that “the question of when to moderate the pace of increases is now much less important than the question of how high to raise rates and how long to keep monetary policy restrictive.” In other words: even if the Fed slows its rate hikes down, it will continue to raise rates for quite some time.

Jerome Powell: We'll slow our pace of rate hikes ... eventually. Stocks sink

From CNN Business staff

Federal Reserve Chairman Jerome Powell speaks at a news conference following another three-quarter-point rate hike today in Washington.

Federal Reserve Chairman Jerome Powell speaks at a news conference following another three-quarter-point rate hike today in Washington.

Patrick Semansky/AP

Federal Reserve Chairman Jerome Powell said the Fed is aware that monetary policy decisions don’t have an immediate impact on the economy, and that it needs to monitor the lag to ensure it doesn’t crash the economy into a recession. The Fed also knows it can’t maintain this historic pace of rate hikes forever.

But the key question remains: when will rate hikes slow down? The Fed seemed to be hinting in its statement Wednesday that it could begin to slow down its hikes as early as next month. But Powell was cagey in his remarks at his press conference.

Rates will be higher than expected before they start to come down, Powell noted. And uncertainty remains around just when the Fed will change its policy.

“At some point, as I’ve said in the last two press conferences, it will become prudent to slow the pace of increases,” he said. “There is significant uncertainty around that level of interest rates. Even so, we still have some ways to go. And incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected.”

Those comments spooked investors. Stocks, which were up sharply following the Fed’s decision, are now lower.

Jerome Powell: We know rate hikes hurt. But we know what we're doing

From CNN Business staff

Federal Reserve Chairman Jerome Powell speaks at a news conference following a Federal Open Market Committee meeting, today in Washington.

Federal Reserve Chairman Jerome Powell speaks at a news conference following a Federal Open Market Committee meeting, today in Washington.

Patrick Semansky/AP

During his opening remarks following another three-quarter-point rate hike, Federal Reserve Chairman Jerome Powell acknowledged that rate hikes have been difficult on Americans and businesses.

“The Fed’s monetary policy actions are guided by our mandate for stable prices for the American people,” Powell said. “My colleagues and I are acutely aware that it poses significant hardship as it erodes purchasing power especially for those least able to meet the higher costs of essentials like food, housing, and transportation.”

A growing chorus of Democratic lawmakers have chastised the Fed for fighting inflation with limited success while, in turn, reducing job opportunities for Americans

But Powell defended the Fed’s actions, noting that high inflation also poses a great risk to the health of the American economy.

“Reducing inflation is likely to require a sustained period of below trend growth and softening of labor market conditions,” Powell said. “Restoring that price stability is essential to set the stage for achieving stable employment and stable prices in the longer run.”

Key long-term bond yield dips below 4% after Fed announcement

From CNN Business' Paul R. La Monica

Stocks weren’t the only things moving following the Fed’s interest rate hike announcement. The yield on the 10-year US Treasury bond, which has a big impact on mortgage rates and other types of consumer and corporate loans, briefly dipped below 4% Wednesday afternoon.

The 10-year yield has now fallen from its earlier 2022 peak of about 4.33% on October 21. But rates are still drastically higher than the level of just above 1.5% that they ended at in 2021.

The rapid spike in the 10-year yield has coincided with worries about inflation and the Fed’s big rate hikes to try and thwart rising prices. So a decline in rates would be good news for Americans, especially those still looking to buy homes or take on other debt.

Stocks rise after Fed rate hike announcement

From CNN Business' Paul R. La Monica

Traders work on the floor of the New York Stock Exchange during morning trading on November 2.

Traders work on the floor of the New York Stock Exchange during morning trading on November 2.

Michael M. Santiago/Getty Images

The Federal Reserve did exactly what the market expected, raising its key short-term interest rate by three-quarters of a percentage point for the fourth consecutive time. Wall Street cheered. Stocks rose in the first few minutes after the announcement.

It appears that investors were pleased by a new line in the Fed statement. The Fed acknowledged that it will “take into account…the lags with which monetary policy affects economic activity and inflation” when making future rate decisions.

Translation? The Fed recognizes that its series of already announced rate hikes may already be slowing the economy and the Fed will need to tread cautiously.

But it could be a bumpy ride for the remainder of the afternoon.

Fed chair Jerome Powell will field questions from reporters starting at 2:30 ET. He’ll likely be asked about the Fed’s outlook for inflation, the jobs market and broader economy and what that means for future rate hikes.

The Dow was up more than 300 points, or 1%, shortly following the Fed decision.
The S&P 500 rose 0.7%.
The Nasdaq Composite gained 0.5%.

The Fed makes history with a fourth straight three-quarter-point rate hike

From CNN Business' Nicole Goodkind

Drew Angerer/Getty Images

The Federal Reserve approved a fourth-straight rate hike of three-quarters of a percentage point on Wednesday as part of its aggressive battle to bring down the white-hot inflation that is plaguing the US economy.

The decision marks the Fed’s toughest policy move since the 1980s and will likely deepen the economic pain for millions of American businesses and households by pushing up the cost of borrowing even further.

A 'pivot' from the Fed may not happen just yet

From CNN Business' Paul R. La Monica

The Fed is expected to announce a three-quarters of a percentage point rate hike for the fourth consecutive time Wednesday afternoon. But investors hope Fed chair Jerome Powell will suggest that he central bank will soon “pivot” and slow its pace of rate hikes.

Those dreams may be dashed.

“I’m not convinced that Powell is backing down,” said Danielle DiMartino Booth, CEO and chief strategist of Quill Intelligence to CNN’s Alison Kosik on Wednesday’s “Markets Now” show. “The onus is on him to stay the course.”

DiMartino Booth, who worked at the Dallas Fed for nine years, said she thinks the Fed will continue to focus more on fighting inflation, especially since the jobs market remains healthy.

The Fed is going to remain vigilant about surging consumer prices, Rick Rieder, chief investment officer of global fixed income at BlackRock, agreed.

“A pivot may be aggressive. We still have high inflation and employment that is still solid,” Rieder told Kosik.

But Rieder said this might be the last rate hike of this magnitude. That’s because the previous rate increases are already having an effect on parts of the economy: “You see it in housing and you’ll soon see it in autos and other interest rate sensitive sectors.”

DiMartino Booth is even more concerned about the impact of rate hikes.

“The Fed definitely having an effect on consumption,” she said, adding that “a recession is pretty much a foregone conclusion.”

Making matters worse, she said, there “could be a prolonged period of time in which we try to heal from this unusually large [rate] hiking cycle.”

Chili's owner hit by high beef and chicken costs

From CNN Business' Danielle Wiener-Bronner

A customer walks towards the entrance of a Brinker International Inc. Chili's Grill & Bar restaurant in San Antonio, Texas, in May 2018.

A customer walks towards the entrance of a Brinker International Inc. Chili's Grill & Bar restaurant in San Antonio, Texas, in May 2018.

Callaghan O'Hare/Bloomberg/Getty Images

High ingredient costs contributed to an operating loss of $19.8 million at Brinker International, owner of Chili’s, in the three months ending September 28 compared to the same period last year. Blame chicken and beef.

“The primary driver of the operating loss in the first quarter was the significant increase in food and beverage costs due mainly to chicken and beef pricing,” the company explained in a Wednesday release discussing its first quarter earnings for fiscal year 2023. Overall, the company saw commodity inflation of about 24% in the quarter.

Chicken costs are falling, the company’s leadership noted during an analyst call, so those pressures should ease.

Brinker suffered a net loss of $30.2 million in the quarter, though company sales rose. Shares dropped about 5% Wednesday.

Like Brinker, other chain owners are feeling the pain of high food prices.

IHOP, owned by Dine Brands, has seen inflated costs due to elevated egg prices and the impact of the war in Ukraine on grain, which means higher prices for pancake mix, Dine’s CEO John Peyton said during a Wednesday analyst call discussing its third-quarter 2022 results.

Consumers are certainly feeling impact of high food prices as well. Restaurants have been raising their prices, and grocery items are getting more expensive. In the year through September, not adjusted for seasonal swings, grocery prices jumped 13%, according to the Bureau of Labor Statistics.

Four straight historic rate hikes? That's the moment we're in

Fron CNN Business' Paul R. La Monica

Jerome Powell leaving a news conference on September 21 at the Federal Reserve after announcing that it was raising interest rates by three-quarters of a percentage point.

Jerome Powell leaving a news conference on September 21 at the Federal Reserve after announcing that it was raising interest rates by three-quarters of a percentage point.

Drew Angerer/Getty Images

The Federal Reserve officially has two mandates it considers when making decisions about interest rates: Keeping inflation low and the maximum number of people employed.

Only the first one matters right now. That’s why the Fed is widely expected to announce another three-quarters of a percentage point rate increase Wednesday afternoon.

This would be the fourth consecutive hike of that magnitude, which has never happened in the so-called modern era of the Fed…i.e once Alan Greenspan became Fed chair in 1987 and opened up the inner workings of the central bank to make its decisions more transparent.

The Fed sets rates to try and keep the economy from overheating or cooling too dramatically. It hikes rates when it’s worried about inflation. Like now. And it cuts rates if there are concerns about the jobs market. But current Fed chair Jerome Powell and other central bankers don’t have to worry too much about a weak labor market.

Just look at the October ADP report, which showed that 239,000 private sector jobs were added…more than expected. Wages also rose 7.7% from a year ago, another sign of inflation. (When workers have more money in their paychecks, businesses usually feel that they can get away with raising prices.)

Of course, higher rates could eventually lead to job losses and rising unemployment and push the economy into recession. We’re not there yet. But it’s clear that several Democratic lawmakers are nervous. That’s why they’re urging Powell to slow down the rate hikes.

With no dot plot, Powell's speech will be under a microscope

From CNN Business' Allison Morrow

Jerome Powell (center) at a "Fed Listens: Transitioning to the Post-pandemic Economy" event in Washington, D.C., on September 23.

Jerome Powell (center) at a "Fed Listens: Transitioning to the Post-pandemic Economy" event in Washington, D.C., on September 23.

Kevin Lamarque/Reuters

There will plenty for Wall Street to parse in today’s Fed policy decision and Chairman Jerome Powell’s subsequent press conference. But one thing investors won’t see is the so-called dot plot projection.

The dot plot, or “Summary of Economic Projections” in Fed-speak, is a special treat for analysts because it shows where the Fed’s policymakers expect the federal funds rate to be in the future, with projections for the full year and beyond.

The Federal Open Market Committee, the Fed’s policymaking group, meets eight times a year but only releases the dot-plot once a quarter. Why? That’s just the way it’s done. We get a dot plot in March, June, September and December.

So the market is even more likely to closely dissect Chairman Powell’s speech, syllable by syllable, as economists and investors seek out hints of when the central bank might begin to scale back its aggressive rate hikes. Markets are already preoccupied with what the Fed will do next month, having priced in a fourth-straight 0.75 percentage point rate hike (also called 75 basis points) for the November meeting.

“A 75 basis-point hike from the Fed this week is practically a done deal,” wrote Luke Bartholomew, senior economist at investment firm abrdn. “The much bigger question is around how the Fed signals its future policy path.”

But don’t expect Powell to make any big pronouncements. He’s been at this game a while now and is unlikely to talk himself into a corner the way he did in 2021 when he repeatedly declared inflation would be “transitory.” The Fed chair is measured and buttoned down under normal circumstances — you can count on him holding his cards especially close today as financial markets hang on his every word.

Stocks open slightly lower as investors anxiously await the Fed

From CNN Business' Paul R. La Monica

Traders working on the floor of the New York Stock Exchange during morning trading today.

Traders working on the floor of the New York Stock Exchange during morning trading today.

Michael M. Santiago/Getty Images

US stocks dipped Wednesday morning. All eyes will be on Washington this afternoon when the Federal Reserve is widely expected to raise interest rates by another three-quarters of a percentage point. The rate hike announcement will be followed by a press conference from Fed chair Jerome Powell.

Inflation is still the number one issue for the Fed, especially after a new jobs report from payroll processor ADP on Wednesday showed that the private sector added 239,000 jobs last month…more than expected. The strength of the labor market is helping to fuel wage gains…and inflation.

The Dow was down about 100 points, or 0.3%, after the opening bell.
The S&P 500 fell 0.1%.
The Nasdaq Composite edged 0.1% lower.

Private sector added 239,000 jobs in October...more than expected

From CNN Business' Paul R. La Monica

Private payroll processor ADP said Wednesday that America’s businesses added 239,000 jobs last month. That was more than the expected increase of 195,000 jobs and also higher than last month’s revised gains of 192,000 jobs.

The ADP jobs numbers come just a few hours before the Federal Reserve is expected to announce that it will once again raise interest rates by three-quarters of a percentage point.

The Fed has been hiking rates to try and squash decades-high inflation, which has been partly fueled by a tight labor market and strong wage gains. Along those lines, ADP said Wednesday that annual pay was up 7.7% over the past 12 months, down slightly from the previous month.

The Department of Labor is set to release its October jobs report on Friday, which includes government workers as well as the private sector. Economists are expecting to see 200,000 jobs added, down from 263,000 in September, and that the unemployment rate ticked up slightly to 3.6% as more people join the workforce. That would still be near a half-century low.

Wall Street's recent love affair with the Fed could turn on a dime

From CNN Business' Nicole Goodkind

Bebeto Matthews/AP

Fed decision day is here — and so is some potential bad news for the market.

That’s because investors have gotten their hopes up again that the central bank will indicate it plans to ease up on hiking interest rates in its battle against rising prices. The problem is the enthusiasm could turn faster than you can say “inflation.”

Comments from Fed officials and press reports led the markets to buy into the idea that even though the central bank will likely raise interest rates by three-quarters of a percentage point at its Wednesday meeting, December’s increase could be smaller.

Expectations for the December meeting are divided, though. The market put chances of a three-quarter point hike at 50%. The probability of a smaller, half-point hike sat at 43%, but that was up from 29% just two weeks ago, signaling a growing optimism among investors.

A potential easing of interest rate hikes will likely be discussed at this month’s meeting, but the eventual peak in the fed funds rate will be dependent on economic data that has yet to be released.

As the pivot narrative once again grows on Wall Street, it will take a carefully orchestrated press conference and statement from the Fed to correct expectations while keeping markets from crashing again.

Wall Street to Fed: Your move

From CNN Business' David Goldman

US stocks were in wait-and-see mode as the Fed gears up for its fourth-straight rate hike of three-quarters of a percentage point this afternoon.

Investors will cleave to every word Fed Chair Jerome Powell has to say about future rate hikes and stocks could get extremely volatile if Wall Street gets the sense that more historic rate hikes are coming down the pike.

Dow futures fell 60 points or 0.2%.

S&P 500 futures fell 0.1%

Nasdaq futures were 0.1% higher.

Fear & Greed Index: 56 = Greed

Oil & gas: US oil was up 0.5% to nearly $89 a barrel. Average US gas prices rose to $3.77 a gallon.