The Dow Jones Industrial Average tumbled to its worst day of the year Wednesday, falling over 2 per cent after the Federal Reserve left interest rates unchanged as central bank officials have appeared conflicted on how to handle mounting inflation concerns.
Key Facts
- The Dow closed down 2.2 per cent, falling 1,153 points to its lowest point in over four weeks.
- Despite the drop, the Dow is up 5.1 per cent in the last six months of trading and has completely recovered from its slump in March that was informed by the war in Iran and rising oil prices.
- The Federal Open Market Committee on Wednesday held interest rates between 3.5 per cent and 3.75 per cent in a 9-3 vote, conflicting with a unanimous vote last month to maintain interest rates, with the three dissenting votes supporting a 0.25 per cent rate hike.
- The committee’s statement provided a rosy picture of the economy, saying economic activity was “expanding at a solid pace” despite the Iran war.
Tangent
The S&P 500 and Nasdaq also slid Wednesday, falling 1.5 per cent and 1.7 per cent, respectively. Both indexes are up at least 5 per cent since January.
Big Number
7.3 per cent. That is how much the Dow has risen since the start of the year. Despite lows near the 45,100 mark in March, the index has jumped to and generally remained about 51,000 points since mid-June.
Key Background
US President Donald Trump nominated Warsh early this year after repeatedly attacking the Fed’s former chairman, Jerome Powell, for the US Fed’s track record of maintaining or raising interest rates amid an effort to curb pandemic-induced inflation. The Federal Reserve cut interest rates multiple times last year, bringing them down to between the 3.5 per cent to 3.75 per cent range by the end of the year. Warsh has not made clear indications about how he plans to address near-term interest rates, while Dallas Fed president Lorie Logan and other members have pushed for “modestly” higher rates alongside a more strict monetary policy. The US Federal Reserve is not expected to lower rates this year, as officials said during the committee’s June meeting a cut could materialise by the second quarter of 2027. Bank of America analysts expect interest rates to be hiked repeatedly before the year is over, potentially reaching the range between 4.25 per cent and 4.5 per cent.
This story was originally published on forbes.com and all figures are in USD.
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