NEW YORK (AP) — Stocks fell broadly on Wall Street Thursday following the latest signal from the Federal Reserve that interest rates will need to go higher than previously expected in order to tame inflation.
The S&P 500 fell 2.1% as of 10:13 a.m. Eastern. The Dow Jones Industrial Average fell 686 points, or 2%, to 33,282 and the Nasdaq fell 2.4%. The slide erased all the weekly gains for the major indexes.
Investors have been hoping that a slow but steady easing of inflation would prompt the Fed to take a less aggressive stance on interest rate hikes. The central bank has been raising rates in an effort to make borrowing more difficult, thereby slowing the economy and cooling inflation.
The Fed raised its short-term interest rate by half a percentage point on Wednesday, its seventh increase this year and a slight easing of the pace of rate increases. The markets’ hopes for a sign that the Fed could take some pressure off the brakes were dashed, though, after the Fed said it expected rates would be higher over the coming few years than it had previously anticipated.
The federal funds rate stands at a range of 4.25% to 4.5%, the highest level in 15 years. Fed policymakers forecast that the central bank’s rate will reach a range of 5% to 5.25% by the end of 2023.
The yield on the two-year Treasury, which closely tracks expectations for Fed moves, rose to 4.27% from 4.21% late Wednesday.
The central bank has been fighting to lower inflation at the same time that pockets of the economy, including employment and consumer spending, remain strong. That has made it more difficult to rein in high prices on everything from food to clothing.
On Thursday, the government reported that the number of Americans applying for unemployment benefits fell last week, a sign that the labor market remains strong. The U.S. did report that retail sales fell in November as inflation squeezes wallets. That pullback followed a sharp rise in spending in October.
Markets in Europe and Asia slipped.
The Asian Development Bank downgraded its forecasts for developing economies in Asia, putting growth for the region at 4.2% this year and 4.6% in 2023. The earlier forecasts had put 2022 growth at 4.3% and 2023′s expansion at 4.9%.
Elaine Kurtenbach and Matt Ott contributed to this report.