NEW YORK — Stocks fell sharply Wednesday after the Federal Reserve indicated the end may be near for its economy-crunching hikes to interest rates, but it also doesn’t expect to cut rates soon despite Wall Street’s hopes.
The S&P 500 fell 1.6% in its first drop in three days. The Dow Jones Industrial Average lost 530 points, or 1.6%, while the Nasdaq composite dropped 1.6%.
Some of the sharpest drops came again from the banking industry, where investors are worried about the possibility of customers yanking their cash and causing more collapses. They slid after Treasury Secretary Janet Yellen said Wednesday she’s not considering blanket protection for all depositors at all banks, unless they present a risk to the overall system.
Stocks of smaller- and mid-sized banks fell sharply. First Republic Bank dropped 15.5%, and PacWest Bancorp. fell 17.1%.
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Stocks saw little change for much of the day, before the Fed raised its key rate by a quarter of a percentage point in its campaign to drive down inflation. The bigger question was where the Fed is heading next. The Fed hinted it may not hike rates much more as it assesses the fallout from the banking industry’s crisis.
Instead of repeating its statement that “ongoing increases will be appropriate,” the Fed said Wednesday it now only sees “some additional policy firming may be appropriate.”
The Fed also released the latest set of projections from its policymakers on where rates are heading in upcoming years. The median forecast had the federal funds rate sitting at 5.1% at the end of this year, up a smidge from where it currently sits, in a range of 4.75% to 5%.
That’s also the same level as seen in December, and it’s counter to worries in the market that it could rise given how stubborn high inflation has remained.
That helped send yields slumping in the bond market, which has been home to some of the wildest action this month.
The yield on the two-year Treasury, which tends to track expectations for the Fed, tumbled to 3.96% from 4.13% just before the projections were released. It was above 5% earlier this month.
All told, the S&P 500 fell 65.90 points to 3,936.97. The Dow dropped 530.49 to 32,030.11, and the Nasdaq fell 190.15 to 11,669.96.
Some of the biggest excitement was around what are called “meme stocks.”
GameStop shot up 35.2% after it reported a surprise profit for its latest quarter. Analysts were expecting another loss for the struggling video-game retailer. In early 2021, hordes of smaller-pocketed and novice investors piled into the stock, sending its price surging.
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