Stocks struggle after the Fed eases up on rate hikes

By Paul R. La Monica, Alicia Wallace and Nicole Goodkind, CNN

Updated 7:10 p.m. ET, December 14, 2022
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4:32 p.m. ET, December 14, 2022

Stocks end day lower in volatile day of trading after Fed hikes rates

From CNN Business' Paul R. La Monica

Traders are seen working at the New York Stock Exchange while a screen displays Federal Reserve Chair Jerome Powell speaking during a news conference after a new interest rates hike was announced on December 14.
Traders are seen working at the New York Stock Exchange while a screen displays Federal Reserve Chair Jerome Powell speaking during a news conference after a new interest rates hike was announced on December 14. (Andrew Kelly/Reuters)

US stocks were whipsawed Wednesday. The market was solidly higher before the Federal Reserve announced an expected interest rate hike of half a percentage point.

But stocks gave up all their gains as investors focused on new forecasts from the Fed that showed slower economic growth and higher unemployment and inflation rates for 2023 than what the Fed predicted in September. The central bank also lifted its projections for how high interest rates may need to go before the end of next year.

The Dow fell more than 140 points, or 0.4%.

The S&P 500 lost 0.6%.

The Nasdaq Composite was down 0.8%.

As stocks settle after the trading day, levels might still change slightly.

4:28 p.m. ET, December 14, 2022

What rising interest rates mean for you

From CNN's Jeanne Sahadi

(Adobe Stock)
(Adobe Stock)

The Fed confirmed Wednesday it may keep pushing rates higher next year — which means higher borrowing costs for consumers.

But it also means your savings may actually start earning a little money after years of barely-there interest.

"Online savings account and CD yields haven't been this high since 2008," said Greg McBride, chief financial analyst at Bankrate. 

There are many other ways to situate your money so that you can benefit from rising rates and protect yourself from their costs. 

Read more here.

3:44 p.m. ET, December 14, 2022

No rate cuts in 2023, Powell says

From CNN Business' David Goldman

Jerome Powell speaks during a news conference today in Washington, DC.
Jerome Powell speaks during a news conference today in Washington, DC. (Alex Wong/Getty Images)

The Fed may not hike rates at the conclusion of each of its meetings next year. But don't expect it to cut rates any any point, either.

"Our focus right now is really on moving our policy stance to one that's restrictive enough to assure a return of inflation to 2% goal over time. It's not on rate cuts," Powell said. "And we think that we'll have to maintain a restrictive stance of policy for some time. Historical experience caution strongly against prematurely loosening policy. I wouldn't say we're considering rate cuts."

3:15 p.m. ET, December 14, 2022

How the Fed plans to overcome economic inequality

From CNN's David Goldman

Fed Chair Jerome Powell, in response to a question from CNN's Nicole Goodkind, said the Fed hopes to tackle high economic inequality by getting inflation under control.

"We want to get back to a long expansion where the labor market can remain strong over an extended period of time," Powell said. "That's a really good thing for workers in the economy and we'd love to get back to that. That's what our goal is."

Powell said the Covid pandemic put Americans and the economy through "a difficult time -- I think much more difficult than we thought would happen." So by bringing inflation lower through rate hikes, Powell said he hopes the Fed can return the economy and low-income Americans to prosperity.

3:36 p.m. ET, December 14, 2022

The Fed isn't expecting its rate hikes to plunge the economy into a recession

From CNN's David Goldman

Screens on the trading floor at New York Stock Exchange display the Federal Reserve Chair Jerome Powell during a news conference after the Federal Reserve announced interest rates will raise half a percentage point today.
Screens on the trading floor at New York Stock Exchange display the Federal Reserve Chair Jerome Powell during a news conference after the Federal Reserve announced interest rates will raise half a percentage point today. (Andrew Kelly/Reuters)

The Fed thinks the US economy will continue to grow through its rate hike campaign, even though it expects America's gross domestic product to slip and unemployment to rise.

"I don't think it would qualify as a recession because you've got positive growth," Powell said.

Investors have been worried that the Fed's continued rate hikes could plunge the US economy into a recession. But the semantics of whether or not America is in a technical recession or not may not matter -- especially to people who lose their job or companies whose profits are squeezed.

That's not the expectation. But Powell also mentioned that recessions can be unpredictable, and the economy may yet fall into recession.

3:20 p.m. ET, December 14, 2022

Powell: 'Structural labor shortage' could help lessen unemployment costs

From CNN's Alicia Wallace

The Federal Reserve's latest economic projections are calling for even higher levels of unemployment next year through 2025.

The Fed is now expecting the US jobless rate to grow to 4.6% next year, up from the current rate of 3.7%. Assuming no change in the size of the labor force, that would mean that about 1.5 million more people would be unemployed.

Still, Fed Chair Jerome Powell believes that the costs of higher unemployment could be eased by the very nature of the current job market and its "structural labor shortage," where vacancies far exceed jobseekers and labor force participation hasn't increased as anticipated.

"Generally, companies want to hold on to the workers they have, because it's been very, very hard to hire," Powell said. "You have all the vacancies far in excess of the number of employed people. It doesn't sound like a labor market where a lot of people need to be out of work."

He added: "So there are channels through which the labor market can come back into balance with relatively modest increases in unemployment."

2:58 p.m. ET, December 14, 2022

When will the Fed stop hiking rates?

From CNN Business' David Goldman

Federal Reserve Board Chairman Jerome Powell holding a news conference following the announcement that the Federal Reserve raised interest rates by half a percentage point, at the Federal Reserve Building in Washington, today.
Federal Reserve Board Chairman Jerome Powell holding a news conference following the announcement that the Federal Reserve raised interest rates by half a percentage point, at the Federal Reserve Building in Washington, today. (Evelyn Hockstein/Reuters)

Fed Chair Jerome Powell threw cold water on hopes that rates would come down anytime soon.

Even as the Fed slows its rate hikes, it's not going to quickly lower them -- even if the economy starts to slump. Inflation, Powell says, is the enemy the Fed has its sights on.

"Ultimately, that question about how high to raise rates is one we'd make looking at progress on inflation and where financial conditions are and making assessment of whether policy is restrictive enough," Powell said. "We have an assessment that we're not as restrictive enough even with today's move."

Powell said the Fed won't cut rates until inflation falls to 2% "in a sustained way."

"At a certain point though, we'll get to that point and then the question will be how long do we stay there. And the strong view of the committee is we'd need to stay there until we're really confident that inflation is coming down in a sustained way. And we think that will be some time."

2:56 p.m. ET, December 14, 2022

Markets were hoping for a better forecast on inflation

From CNN Business' Paul R. La Monica

Why did stocks tumble after the Fed did pretty much exactly what the market thought it would? It's not about today's rate hike, according to one investment strategist. It's because the Fed signaled in its economic projections that more rate increases are coming than investors anticipated due to persistent inflation...which isn't falling as quickly as hoped.

The Fed is expecting that core PCE inflation, a key measure of consumer prices preferred by the Fed and many economists, will rise 3.5% in 2023. That's up from a September projection of 3.1%.

Andrzej Skiba, head of US fixed income at BlueBay Asset Management, said the market was hoping that core PCE growth would be closer to a level beginning with a 2 instead of a 3 by the end of next year.

"That could have given the Fed reason to cut rates in back end of 2023 if a recession is coming," Skiba said, adding that rate cuts are probably now not in the cards until 2024.

Skiba noted that investors also were disappointed by the fact that the Fed is now saying that interest rates could end next year at 5.1%...higher than the 4.6% projection in September.

3:16 p.m. ET, December 14, 2022

Hard work ahead for Fed in 2023, Bankrate analyst says

From CNN Business' Alicia Wallace

The pace of Federal Reserve rate hikes may be slowing, but "the hard work is still ahead" for the central bank as it tries to bring down inflation with minimal economic pain, said Greg McBride, chief financial analyst for Bankrate.

"The Fed is confident they can push interest rates above 5% without unemployment rising above 5%, despite scant economic growth in 2023. Optimistic? Every football coach says on Friday they’re going to win that weekend – even though we know half of them will lose," McBride said in a statement.

It has been easy — and necessary — for the Fed to be aggressive in 2022, given the historically low unemployment rate and decades high inflation, McBride noted.

That path will get more challenging in 2023, he added.

"It gets a lot tougher to raise rates once the economy slows, unemployment rises, and inflation remains stubbornly high," he said. "Happy New Year, Mr. Powell!"