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US Stocks Fall; Fed Signals Rate Hike  01/26 15:57

   An early market rally on Wall Street gave way to a broad slide for stocks 
and a surge in bond yields Wednesday after the Federal Reserve signaled it 
plans to begin raising interest rates "soon" to fight a spike in inflation that 
the central bank says is probably getting worse.

   (AP) -- An early market rally on Wall Street gave way to a broad slide for 
stocks and a surge in bond yields Wednesday after the Federal Reserve signaled 
it plans to begin raising interest rates "soon" to fight a spike in inflation 
that the central bank says is probably getting worse.

   The S&P 500 fell 0.1% after having been up 2.2% earlier in the day. The Dow 
Jones Industrial Average fell 0.4% after swinging more than 900 points from its 
high for the day. The Nasdaq ended little changed, shedding most of a 3.4% gain.

   Bond yields rose, including the yield on the 10-year Treasury note, which 
climbed to 1.87% from 1.78% late Tuesday. Yields affect rates on mortgages and 
other consumer loans.

   In a statement issued after its latest policy meeting, the Fed said it 
"expects it will soon be appropriate" to raise rates. Such a move is expected 
to happen as soon as March, as half the Fed's policymakers have expressed a 
willingness to raise rates by then. The Fed also said it would phase out its 
monthly bond purchases, which have been intended to lower longer-term rates, in 
March.

   The major stock indexes initially rose after the 2 p.m. Eastern release of 
the Fed statement, but shed most of their gains as Fed Chair Jerome Powell took 
repeated questions about how and when the central bank will start letting its 
balance sheet shrink after buying trillions of dollars of bonds through the 
pandemic.

   The selling accelerated as Powell acknowledged that the high inflation 
slamming the economy isn't getting better, which could force the Fed to get 
even more aggressive about raising interest rates and removing the support it 
put in pace for markets.

   "Since the December meeting, I'd say the inflation situation is about the 
same but probably slightly worse," he said. "It hasn't gotten better. It's 
probably gotten just a bit worse, and that's been the pattern."

   Powell also said that there's room to raise interest rates without hurting 
the labor market, and wouldn't rule out the possibility that it could raise 
short-term interest rates at any one of its meetings this year or raise by a 
larger-than-usual amount at any one.

   Those comments sent a signal to Wall Street that the Fed may be more hawkish 
when it comes to tackling inflation, said Willie Delwiche, investment 
strategist at All Star Charts.

   "In the market's mind, that's more rate hikes, and while he was clear to say 
that the economy is strong enough to handle those rate hikes, from a strictly 
(stock) market perspective, higher rates weigh on expensive stocks," Delwiche 
said.

   The S&P slipped 6.52 points to 4,349.93. The Dow fell 129.64 points to 
34,168.09. The Nasdaq rose 2.82 points to 13,542.12. The indexes are all on 
pace for weekly losses.

   The market had been solidly higher prior to the release of the Fed statement 
following several days of volatile swings as investors try to gauge whether the 
Fed will succeed in its new effort to fight inflation. The central bank had 
been widely expected to continue drawing back its stimulus measures ahead of 
raising interest rates in the coming months.

   Pressure from inflation on businesses and consumers is what is driving the 
Fed to raise interest rates this year. There was some concern on Wall Street 
that Powell could suggest that the central bank will raise interest rates this 
year more than the four times that most economists currently expect.

   For nearly two years, investors had poured money into stocks, confident that 
the Federal Reserve would help keep share prices upright. With that support 
going away, markets have been hit with a bout of volatility. The S&P 500 is 
down 9.5% so far this year.

   Markets rose following the Fed's last policy meeting in mid-December. It 
wasn't until three weeks later, in early January, that stocks turned jittery. 
That's when minutes released from that meeting suggested Fed policymakers may 
be more zealous about fighting inflation through higher interest rates than 
many had been expecting.

   Investors knew that higher rates were on the way, but the minutes showed 
that the Fed was likely to raise rates faster than in prior efforts to get 
rates back to normal. Perhaps more impactfully, the Fed also said it was likely 
to be quicker than in the past to reduce its huge holdings of bonds it had 
bought up through the pandemic to keep longer-term interest rates low. That 
would have a similar effect as additional rate increases.

   All but two of the sectors in the S&P 500 turned lower, with communication, 
health care and industrial stocks weighing down the index the most.

   Strong earnings reports and financial forecasts underpinned gains for some 
stocks. Microsoft rose 2.8% after reporting standout results for its latest 
quarter on solid demand for its cloud-computing services and work software. 
Chipmaker Texas Instruments rose 2.5% after giving investors a solid earnings 
report and financial forecast.

   Investors are also gauging the threat from COVID-19 and the omicron wave's 
impact on economic growth. The International Monetary Fund cited the omicron 
variant as the reason it downgraded its forecast for global economic growth 
this year.

   Wall Street is also carefully watching the potential conflict between Russia 
and Ukraine, which could push energy prices higher and force nations to focus 
on a war just as they are trying to focus on keeping the virus pandemic in 
check, along with economic growth.

 
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