Shares end ambiguously when traders analyze the Fed’s next move

Shares shook off an early downturn and ended ambiguously on Wall Street on Wednesday after minutes of the last meeting of the Federal Reserve showed that politicians are still leaning towards a strong move to fight inflation.

Bidding was volatile after the Fed’s noon release minutes. The S&P 500 rose 0.1% after falling 0.9% initially. The Dow Jones Industrial Average was down 0.2% and the Nasdaq was down 0.1%.

Treasury bond yields jumped slightly as traders tried to analyze the latest update from the Fed. Yields on 10-year Treasury bonds ended at 2.03%, slightly lower than on Tuesday.

Wall Street is looking for clues as to how much and how soon the central bank will start raising interest rates. Traders see a 44% chance of a first raise in March by half a percentage point, twice the traditional move.

Discussing the prospects of monetary policy, most Fed politicians have suggested faster growth in the central bank’s reference short-term interest rate than that followed by the Fed since the last rate hike in 2015, “is likely to be justified if the economy as a whole develops in line with the Committee’s expectations”.

Politicians also noted during the meeting that it would be appropriate for the Fed to “significantly reduce” the size of its balance sheet.

“Markets are important in time, and the Fed’s delayed response has led investors to believe that aggressive policy tightening is on the horizon,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.

The S&P 500 rose 3.94 points to 4,475.01. On Tuesday, the base index broke away from a broad rally that interrupted a three-day losing streak. The Dow was down 54.57 points to 34,934.27 and the Nasdaq was down 15.66 points to 14,124.09.

Shares of small companies rose. Russell 2000 increased 2.85 points, or 0.1%, to 2,079.31.

Much of the modest growth in the S&P 500 was driven by growth in energy stocks, retailers and other companies that rely on consumer spending to control losses in the technology and communications sectors.

Most Fed officials agreed during their meeting last month that a faster rise in interest rates would be needed “if inflation does not fall,” as expected by the central bank’s policy development committee. Back in December, the Fed predicted that inflation, based on their preferences, would fall to an annual rate of 2.6%. Now it is 5.8%.

But Fed politicians disagree on how to raise rates quickly. On Monday, James Bullard, president of the Federal Reserve Bank of St. Louis, reiterated his call on the Fed to take an aggressive step to raise its benchmark short-term rate by a full interest rate by July 1. Esther George, President of the US Fed Kansas City has expressed support for a more “gradual” approach. And Mary Daly of the San Francisco Fed gave up more than a modest rate hike next month.

Most analysts expect Fed officials to raise that forecast at their next meeting in mid-March to reflect the acceleration in consumer prices. Inflation has peaked in four decades, shattering household budgets and destroying wage growth benefits.

Rising inflation is cutting the profits and incomes of businesses in a wide range of industries. Many companies are raising prices to offset costs, including producer of cereals Kellogg. This has raised concerns that consumers may end up cutting costs, although a recent Department of Commerce report shows that retail sales remained strong in January as the threat of the omicron version of COVID-19 disappeared.

This was announced by the government on Wednesday Retail sales rose 3.8% last month, beyond the forecasts of most economists. This is compared to the previous month, when sales fell 2.5%.

Investors have brushed aside encouraging data on retail sales, but the results and other solid economic upgrades remain encouraging for the broader economic picture as the Fed begins to tighten interest rate policies, ”said Liz Ann Saunders, chief investment strategist Charles Schwab.

“The Fed is moving, period,” she said. “It happens no matter what, so it’s best if you have economic data that stays stable.”

The potential for escalation of the conflict between Russia and Ukraine this week also raised key investor concerns. Wider markets intensified on Tuesday after Russia announced the withdrawal of some of its troops gathered on the border with Ukraine. Tensions remain high as NATO and Western officials question the allegations.

This week, energy prices were particularly volatile. Russia is a major energy producer and military conflict can disrupt supplies and shake markets. U.S. crude oil prices rose by 1.7% in benchmarks, turning the course from a 3.6% drop on Tuesday. Energy reserves have grown by reversal. ConocoPhillips went up 0.6%.

Wall Street is also tracking recent corporate earnings reports to assess how companies are coping with supply chain challenges and pressures due to rising inflation.

Airbnb rose 3.6% after reporting strong financial results and giving investors an encouraging earnings forecast. Walmart will announce its results on Thursday.

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