By DAMIAN J. TROISE and ALEX VEIGA
Stock indexes were mixed on Wall Street in afternoon trading Wednesday after minutes from the Federal Reserve’s latest policy meeting showed policymakers discussing the possibility of a more aggressive pace of interest rate hikes as the central bank moves to fight inflation.
The S&P 500 was up 0.3% as of 3:07 p.m. Eastern after wavering between small gains and losses following the 2 p.m. release of the minutes. The Dow Jones Industrial Average was down 50 points, or 0.1%, to 34,937, and the Nasdaq composite edged up 0.1% after having been down 1.5% in the early going.
Treasury yields bounced around a bit as traders tried to parse the latest update from the Fed. The 10-year Treasury yield wound up back at 2.04%, where it was late Tueseday.
Wall Street has been focused on the Federal Reserve, looking for clues about how far and how quickly the central bank will begin raising interest rates. Traders see a 44% chance for a first hike in March of half a percentage point, double the traditional move.
In their discussion of the outlook for monetary policy, most Fed policymakers suggested that a faster pace of increases in the central bank’s benchmark short-term interest rate than what the Fed followed after its last rate hikes in 2015 “would likely be warranted, should the economy evolve generally in line with the Committee’s expectation.”
Policymakers also noted during the meeting that it would be appropriate for the Fed to make “a significant reduction” in the size of its balance sheet.
“In markets, timing is everything, and the delayed reaction from the Fed has investors convinced that aggressive policy tightening is on the horizon,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.
Fed policymakers agree the central bank should begin raising interest rates next month, they differ on how quickly to do so. On Monday, James Bullard, president of the Federal Reserve Bank of St. Louis, repeated his call for the Fed to take the aggressive step of raising its benchmark short-term rate by a full percentage point by July 1. Esther George, president of the Kansas City Fed, expressed support for a more “gradual” approach. And Mary Daly of the San Francisco Fed declined to commit herself to more than a modest rate hike next month.
Technology and communications stocks were the heaviest weights on the broader market, offsetting gains in energy, industrials and other sectors. Microsoft fell 0.3% and Facebook’s parent, Meta, shed 2.6%.
Rising inflation has been crimping profits and revenue for businesses in a wide range of industries. Many companies have been raising prices to offset the costs, including cereal maker Kellogg. That has raised concerns that consumers could eventually pull back spending, though the latest report from the Commerce Department shows that retail sales remained strong in January as the threat of the omicron variant of COVID-19 faded.
The government reported that retail sales surged 3.8% last month, whizzing past the projections of most economists. That compared to the prior month when sales slid 2.5%.
Investors brushed off the encouraging retail sales data, but the results and other solid economic updates remain reassuring for the bigger economic picture as the Fed starts tightening its interest rate policy,” said Liz Ann Sonders, chief investment strategist at Charles Schwab.
“The Fed is moving, period,” she said. “That’s happening no matter what, so it’s better if along the way you have economic data that remains resilient.”
The potential for an escalating conflict between Russia and Ukraine has also been a key concern for investors this week. Broader markets rallied on Tuesday after Russia claimed to remove some of its troops amassed on the Ukraine border. Tensions still remain high as officials from NATO and the West cast doubt on those claims.
Energy prices have been particularly volatile so far this week. Russia is a major energy producer and a military conflict could disrupt supplies and jolt markets. U.S. benchmark crude oil prices rose 1.7%, reversing course from a 3.6% slump on Tuesday. Energy stocks gained ground on the reversal. ConocoPhillips rose 1.5%.
Wall Street is also monitoring the latest corporate earnings reports to gauge how companies are handling supply chain problems and pressure from rising inflation.
Airbnb rose 4.7% after reporting strong financial results and giving investors an encouraging revenue forecast. DoorDash will report its latest results late Wednesday afternoon and Walmart will report its results on Thursday.