US stocks fell Thursday morning as Wall Street reeled after another sizable rate hike by Federal Reserve officials and weighed similar moves by central bank officials on the other side of the Atlantic. A disappointing reading on consumer spending also weighed on sentiment.
The European Central Bank and the Bank of England followed the US Fed in raising interest rates by 50 basis points on Thursday morning. The BoE hike has driven rates in the country to the highest since 2008.
The S&P 500 (^GSPC) slid 1.4%, while the Dow Jones Industrial Average (^DJI) lost about 380 points, or 1.1%. The tech-heavy Nasdaq Composite (^IXIC) fell 1.7%.
Meanwhile, the government’s retail sales report showed spending fell sharply in November as the holiday shopping season kicked off. The latest retail sales reading showed a 0.6% decline from the previous month, but a 6.5% increase since November 2021.
Tesla (TSLA) opened Thursday after a regulatory filing showed CEO Elon Musk sold about 21,995,000 shares of the company, worth about $3.6 billion, during the three-day period ending Dec. 14 . Shares of Tesla are down about 20% in December so far and about 55% so far this year after the EV giant’s sell-off accelerated in recent days.
Shares of Lennar (LEN) fell 3% at the start of trading, even after the homebuilder posted an 11% rise in fourth-quarter profit late Wednesday.
Thursday morning’s moves follow declines in the major averages in the previous trading session after the Fed raised its key interest rate by 50 basis points. Fed Chairman Jerome Powell also stressed that he and his colleagues would continue to hike rates in 2023 to an upwardly revised projected terminal rate of 5.1%.
Wednesday’s half a percentage point hike, which took the fed funds rate to a range of 4.25% to 4.5%, marked a slowdown from 75 basis point hikes in each of the past four Fed policy meetings, the most aggressive period of hikes since the 1980s.
Despite a slowdown in the pace and size of the hikes, Powell continually said the work by him and his colleagues to address stubbornly high inflation was far from over.
“Now that we’ve raised interest rates by 425 basis points this year and are in tight territory, now it’s not as important how fast we go — it’s much more important to think, what’s the maximum level?” Powell said in a news conference with reporters Wednesday. “At some point, the question will become, how long are we going to remain restrictive?”
The Fed’s “dot plot,” which shows policy makers’ estimates for interest rates, showed expectations that the federal funds rate will rise in 2023 between 5.1% and 5.4% and in 2024 it will still at a median rate of 4.1% versus a previously estimated 3.9% rate – change strategists point out is the only real surprise revision to the central bank’s outlook.
“These estimates are significantly more aggressive than their previous forecasts and have not been followed as far in advance as is usually the case with the Fed,” William Blair macro analyst Richard de Chazal said in a statement.
Alexandra Semenova is a reporter at Yahoo Finance. Follow her on Twitter @alexandraandnyc
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