Why Are Stocks Down?

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After a rollercoaster day, stocks plummeted heading into the market close after a controversial Federal Reserve rate hike announcement. Indeed, the central bank opted to raise rates once again this afternoon. This time, the Fed went with a comparably hawkish 25 basis point hike.

The Fed was faced with perhaps its most difficult decision today. Stuck between a rock and a hard place, it had to choose between pausing rate hikes in the face of an increasingly uncertain banking crisis or keeping up the pressure, likely welcoming public and political backlash.

Frankly, it’s still unclear if the Fed chose correctly. While equity markets enjoyed a bit of daylight after the Fed laid expectations for an impending conclusion to its current rate hike cycle, it seems to have been all for nought. Stocks sunk heading to the bell.

Investors may have been temporarily charmed by the notable tone shift in the Federal Open Market Committee’s (FOMC) statement. The committee removed “ongoing increases” from its language, leaving some analysts expecting a more abrupt end to the rate hikes than previously thought.

Why Are Stocks Down Today?

The S&P 500, Dow 30 and Nasdaq Composite are all well in the red following the ninth rate hike decision this cycle. Indeed, all three are down about 1.6% after trending in the green just hours ago.

While the 25 basis point hike was largely projected by analysts, the Fed’s comments have investors split. Per the Fed statement:

“The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.”

Following the rate hike, the federal funds rate will hover in a new range between 4.75% and 5%, the highest level since October 2007.

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

With degrees in economics and journalism, Shrey Dua leverages his ample experience in media and reporting to contribute well-informed articles covering everything from financial regulation and the electric vehicle industry to the housing market and monetary policy. Shrey’s articles have featured in the likes of Morning Brew, Real Clear Markets, the Downline Podcast, and more.

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