By Sinéad Carew
(Reuters) – Global shares lost ground while the dollar cut its losses on Wednesday after the U.S. Federal Reserve paused its interest rate hikes as was widely expected but signalled that it could raise rates by another half percentage point by year-end.
The central bank issued new economic projections that suggested borrowing costs were likely to rise by another half of a percentage point by the end of 2023 due to a stronger-than-expected economy and a slower decline in inflation.
It said that “holding the target (interest rate) range steady at this meeting allows the committee to assess additional information and its implications for monetary policy,” the rate-setting Federal Open Market Committee said in a unanimous policy statement issued at the end of its latest two-day meeting.
“In this way policy makers can maintain some flexibility depending how the economy and inflation progress. Looking at the resilience of the economy keeps the Fed on high alert rather than letting its guard down too soon,” said Angelo Kourkafas, senior investment strategist at Edward Jones, St Louis.
“The message is clear from CPI and PPI that we continue to see progress but with inflation still above the 2% target the Fed cannot yet declare victory,” he said.
“The idea of any rate cuts is off the table for this year.”
After the Fed statement the Dow Jones Industrial Average deepened its losses, falling 388.86 points, or 1.14%, to 33,823.26. The S&P 500 turned negative and was last down 23.81 points, or 0.54%, at 4,345.2 while the Nasdaq Composite also turned red, dropping 77.68 points, or 0.57%, to 13,495.65.
MSCI’s gauge of stocks across the globe shed 0.23% after rising as much as 0.61% earlier in the session.
In Treasuries, benchmark 10-year notes were down 1.6 basis points to 3.823%, from 3.839% late on Tuesday. The 30-year bond was last down 4.9 basis points to yield 3.8923%, from 3.941%. The 2-year note was last was up 5.8 basis points to yield 4.7537%, from 4.696%.
In currencies, the dollar index fell 0.116%, with the euro up 0.17% to $1.0809. The Japanese yen strengthened 0.14% versus the greenback at 140.01 per dollar, while Sterling was last trading at $1.2638, up 0.21% on the day.
In energy, crude oil futures added to losses after the Fed’s news. The commodity had already given up earlier gains as traders weighed an unexpected, large build in U.S. crude oil against bullish demand growth forecasts.
U.S. crude recently settled down 1.66% at $68.25 per barrel while Brent settled at $73.20, down 1.47%.
(Reporting by Sinéad Carew, Yoruk Bahceli and Stella Qiu; Editing by Jacqueline Wong, Sharon Singleton, Chizu Nomiyama, Richard Chang and Nick Macfie)
