Dow Jones slips 300 points as Fed policy meeting begins, rates rise

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Stocks fell on Tuesday as the Federal Reserve kicked off its two-day policy meeting and Wall Street expected another big rate hike on Wednesday.

The Dow Jones Industrial Average fell 340 points, or 1.1%. The S&P 500 lost 1% and the Nasdaq Composite slipped 0.7%.

The Federal Open Markets Committee begins its September meeting on Tuesday, at which central bankers are expected to announce a rate hike of 0.75 percentage points on Wednesday. Stocks have fallen in recent weeks as comments from Fed Chairman Jerome Powell and a surprisingly hot August consumer price index report prompted traders to brace for even higher rates until inflation cools.

Rates rose on Tuesday, with the yield on the 2-year treasury hitting a new high dating back to late 2007. The yield on the 10-year treasury traded at 3.593%, near levels not seen since 2011 .

Meanwhile, Ford shares fell 9% after it announced supply chain issues would cost the automaker an additional $1 billion in the third quarter.

“Heightened fear of recession risk helped keep US policy rates inverted from early 2023 into early 2026 and may help explain why equity volatility is higher than the macro landscape would typically predict,” Dominic Wilson wrote. from Goldman Sachs in a note to clients on Tuesday. “Even so, markets will still have to adjust significantly if the most hawkish view of the labor market is correct.”

Wilson said the S&P 500 needs to trade in the 2,900 to 3,375 range and 5-year yields between 4.5 and 5.4% if the Fed needs to see higher unemployment to gain confidence than inflation will go down.

Housing market data released on Tuesday showed an unexpected increase in housing starts in August, although building permits saw the biggest drop since April 2020.

During a choppy trading session on Monday, stocks rose in the afternoon to snap a two-day losing streak and recoup some of their recent losses.

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