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Stocks fall for third day as investors mull rate hike, Powell remarks

U.S. stocks closed lower on Thursday to cap off a tumultuous session after the Federal Reserve’s latest policy announcement and subsequent comments from Chairman Jerome Powell sent markets into turmoil.

The benchmark S&P 500 fell 0.9%, while the Dow Jones Industrial Average lost 100 points or 0.4%. The tech-heavy Nasdaq Composite fell 1.4%. The moves extend a Fed-induced sell-off on Wednesday, with the S&P 500 and Dow each losing about 1.7% and the Nasdaq plunged 1.8%, marking a third consecutive day of declines for US stock markets.

Elsewhere in the wake of the Fed’s decision, the 2-year Treasury yield held near 4.1%, its highest level since 2007, while the 10-year Treasury remained close to 3.5%, its highest level since 2011. .

On Wednesday, Fed officials raised interest rates by 75 basis points for the third time in a row, pushing the Federal Funds rate to a new range of 3.0% to 3.25% from a current range of 2.25%. and 2.5%.

Policymakers also expect interest rates to rise higher than before and to maintain that level, forecasting the fed funds rate to rise to 4.4% by the end of this year and to 4.6% by the end of 2023. That’s an increase of 3.4% for this year and 3.8% earlier.

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The Fed’s decision was followed by a large number of central banks around the world on Thursday. The Bank of England raised its key rate by 50 basis points and the Swiss National Bank increased by 75 basis points. Market observers also expect the European Central Bank to raise interest rates next month.

Jerome Powell, chairman of the board of the US Federal Reserve, pauses during a news conference after the Federal Reserve raises its target rate by three-quarters of a percentage point in Washington, US, Sept. 21, 2022. REUTERS/Kevin Lamarque

“With the new interest rate forecasts, the Fed is working on a hard landing – a soft landing is almost impossible,” said Principal Global Investors Chief Global Strategist Seema Shah. Powell’s admission that there will be below-trend growth for a period of time should be translated as the central bank’s ‘recession’.

Certain economic data reflected the Fed’s campaign. Mortgage rates continued to spiral upward, almost 6.3% on a 30-year fixed loan, and remained at their highest level since 2008.

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Elsewhere, first-time jobless claims rose to 213,000 in the week ended Sept. 17, from a downwardly revised 208,000 the week before — the lowest since May — the Labor Department said Thursday. Economists asked for 217,000 claims, according to consensus estimates prepared by Bloomberg.

In company news, Lennar (LEN) shares rose 2% on the heels of earnings, even as the homebuilder said its third-quarter results were impacted by higher interest rates.

KB Home (KBH) was also a mover after the company cited headwinds from ongoing supply chain constraints and warned that these issues could impact its fourth quarter results. The stock fell 5%.

The S&P’s losses on Wednesday marked the index’s 29th decline this year between 1% and 2% — the largest since 2008, with 34 such declines, per year. data from Compound Advisors. Thursday it could avoid a 30th.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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