Stock market today: Wall Street drifts lower as Fed holds rates steady but hints of hikes ahead

Wall Street is pointing lower after the U.S. Federal Reserve left its benchmark borrowing rate unchanged for the first time in more than a year, but issued projections of as many as two additional quarter-point rate hikes before 2023 is over.

Futures for the Dow Jones Industrials fell 0.2% before the opening bell Thursday and the S&P 500 slipped 0.4%.

In standing pat on rates, Fed Chair Jerome Powell said the economy will have more time to absorb past hikes, adding, “ideally by taking a little more time, we won’t go well past the level where we need to go.”

However, signaling clearly that they do not think the U.S. has escaped the gravitational pull of inflation, Fed policymakers issued projections Wednesday showing they envision as many as two additional quarter-point rate hikes before the year ends. That’s a more aggressive stance than the single rate hike that most had expected.

“It is too early to say that Powell is winning the fight against inflation,” said Ruslan Lienkha, chief of markets at YouHodler, a financial services company.

“The Fed can later decide to continue the rate increase or keep high rates for a significantly long time. Such scenarios are quite possible and might obviously disappoint financial markets in one or a few months.”

The Fed closed its latest policy meeting by saying it would keep rates where they are to give more time to see how its fusillade of hikes over the last 15 months is affecting the economy. It’s trying to slow the economy just enough through rate increases to snuff out high inflation without damaging the job market and creating a recession.

The majority of Fed policy makers indicated Wednesday they still expect its main interest rate to climb at least 0.50 percentage points by the end of the year. The federal funds rate is already at its highest level since 2007, in a range between 5% and 5.25%.

Inflation has slowed since last summer’s peak, but Powell said there hasn’t been enough improvement in underlying trends to feel comfortable. Inflation is still too high for comfort, causing misery especially for those with lower incomes.

One potential economic stumbling block appears to have been cleared. Late Wednesday, the union for thousands of West Coast dockworkers reached a tentative agreement on a new contract after more than a year of negotiations and several work disruptions that snarled shipping traffic at some of the largest ports.

Later Wednesday, the Commerce Department releases retail sales data for May and the Labor Department issues its weekly jobless claims report. Consumer spending and the labor market have largely remained healthy throughout the Fed’s interest rate hikes the past year.

In Europe at midday, France’s CAC 40 declined 0.8%, Germany’s DAX shed 0.6% and Britain’s FTSE 100 was relatively unchanged.

Data from China showed consumer and factory activity weakened in May and record-breaking unemployment among young people in cities rose as an economic rebound following the end of anti-virus controls slowed. Consumers, uneasy about possible job losses, have returned to shops and restaurants less quickly than expected.

In Japan, machinery orders for April, released Thursday, showed the first growth in three months. Trade figures for May showed a deficit for 22 months in a row, as import costs rose with the rising energy and other prices.

Japan’s benchmark Nikkei 225 erased morning gains to finish little changed, down less than 0.1% at 33,485.49. Australia’s S&P/ASX 200 added 0.2% to 7,175.30. South Korea’s Kospi shed 0.4% to 2,608.54. Hong Kong’s Hang Seng gained 2.2% to 19,828.92, while the Shanghai Composite edged up nearly 0.7% to 3,252.98.

In energy trading, benchmark U.S. crude added 88 cents to $69.15 a barrel in electronic trading on the New York Mercantile Exchange. It gave up $1.15 on Wednesday to $68.27 a barrel.

Brent crude, the international standard, rose 96 cents to $74.16 a barrel.

In currency trading, the U.S. dollar cost 141.16 Japanese yen, up from 140.07 yen. The euro cost $1.0842, up slightly from $1.0833.

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Kageyama reported from Tokyo; Ott reported from Silver Spring, Md.