The stock market finished deep in the red on Wednesday after the Federal Reserve's latest rate decision sparked a wave of volatility during the afternoon. Stocks fell in the late stages of the session amid concerns that policymakers would be unable to engineer a soft landing as they plan further increases in interest rates.
Equities sold off sharply on the initial Fed decision, then rallied to highs of the day as Federal Reserve Chair Jerome Powell took questions and said the FOMC could slow the rate of hikes to assess impact.
However, stocks turned around again after Powell said the odds of a soft landing are diminishing. The Fed chief also suggested that housing may have to go through a correction.
The Nasdaq led the retreat, dropping 204.86 points to close at 11,220.19. The Dow Jones fell 522.45 points to close at 30,183.78, while the S&P 500 dipped 66 points to end at 3,789.93.
All 11 S&P sectors eventually finished in negative territory. The retreat was led by Communication Services, Consumer Discretionary, Financials and Materials, which each dropped more than 2%.
The lower finish broke tradition established on the last several Fed Days. Like those earlier sessions, Wednesday featured sharp moves and reverses in the immediate aftermath of the central bank's announcement. But the last four decision days have seen a gain of more than 1.5% in the S&P by the close.
The bond market also saw volatility following the Fed announcement. Ultimately, the 10-year Treasury yield (US10Y) dropped 5 basis points to 3.52% and the 2-year yield (US2Y) was up 7 basis points to 4.03% after hitting a high of 4.12%.
Following its regularly scheduled policy meeting, the Fed raised its key rate by 75 basis points. But it was the dot plot in the Summary of Economic Projections that drove market action initially, with the median forecast calling for a fed funds rate of 4.4% by the end of 2022. That would mean another 125 basis points of tightening over two meetings.
At his press conference, Powell said his message remained the same as it was at Jackson Hole and that he was still looking for compelling evidence that inflation was moving down to 2%. But he also said that at some point it will be appropriate to slow the pace of increases.
The "forecasts are intended to convey continued determination on the part of the Fed to drive inflation down, but we see room for maneuver, even in the quite short term, if we are right in our view that margin recompression will drive down core inflation faster than the Fed and markets think," Pantheon Macro's Ian Shepherdson wrote.
Fed funds futures are now pricing in a 66% chance of 75 basis points in November and a 61% chance of 50 bps in December.
Powell said that the FOMC isn't locked into any specific hikes at upcoming meetings given the disparity of expectations in the dot plot.
Market expectations for end of this year were for 4.1%, with 4.2% priced in, according to Bloomberg.
On the economic front, August existing home sales data slipped but less than expected. August existing home sales came in at -0.4% to 4.80M compared to the 4.70M consensus and 4.82M previous figure.
Amid active stocks, General Mills was among the notable gainers in the S&P following solid results and stronger guidance.