Asian stocks slump after Fed says US rates will rise ‘soon’

On Wall Street, the S&P 500 slipped to 4,349.93 after being up 2.2% ahead of the Fed announcement.

The Dow Jones Industrial Average fell 0.4% to 34,168.09. The Nasdaq composite was little-changed at 13,542.12, shedding a 3.4% gain earlier in the day.

Wall Street rose immediately after the Fed statement but major indexes gave up their gains as Chair Jerome Powell took 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. That would put upward pressure on market interest rates.

The selling accelerated as Powell acknowledged high inflation that has squeezed businesses and consumers isn’t getting better. That could force the Fed to get even more aggressive about raising rates and removing the support it put in place for markets.

The last time the Fed raised rates and shrank its balance sheet at the same time was in late 2018. The S&P 500 lost nearly 20%.

“Since the December meeting, I’d say the inflation situation is about the same but probably slightly worse,” Powell 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 the Fed could raise short-term rates at any of its seven remaining meetings this year or opt for a larger-than-usual increase at any one of them.