US stocks fall as traders monitor Fed’s next moves

Following a fresh GDP report that exceeded expectations, stocks continued their upward trend on Thursday, with the Dow rising by almost 400 points. Following the widely anticipated Federal Reserve rate increase of 25 basis points on Wednesday, stocks experienced a small decline. The central bank also hinted through a revision in its statement that it would suspend rate increases.

The Dow Jones Industrial Average lost 277 points, or 0.8%, during trading.The Nasdaq Composite and S&P 500 both fell by 0.7% and 0.6%, respectively. After Powell ruled out lowering interest rates because he did not anticipate inflation to decline quickly enough, bullish sentiment was somewhat dented.

“The Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” the Fed said in a statement. “In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy.”

But this time, traders were more interested in what the Fed omitted from its post-meeting statement. Following the release of the statement, Powell told the media that dropping that language was a “meaningful change” and that the central bank’s decision in June would be influenced by new data.

The Fed is worried that tighter credit conditions may hinder hiring and economic growth while supporting the trend towards deflation. As long as we avoid a perfect storm of hotter-than-expected labour and inflation data, it appears that the Fed will leave rates on hold for at least until the end of the year. Credit tightening is set to cripple the economy.

The SPDR S&P Regional Banking ETF (KRE), which had previously gained more than 2%, fell by 0.8%. Tuesday’s trading session saw a more than 6% decline in the regional banking ETF. Shares of PacWest increased by 4% after falling by nearly 28% the day before. Shares of Western Alliance rose by 2% as well.

Even if there are still slim chances that the US will go over its debt ceiling, the Treasury Department’s new X-date deadline might have a significant impact on how the drama is now playing out.

The statements follow those made earlier in the week by Janet Yellen, the U.S. Treasury Secretary, who warned that the country could not be able to pay its debts by June 1 and far sooner than anticipated.