US stock indices fell on Wednesday, erasing strong gains after the Federal Reserve signalled an imminent interest rate hike, while supply concerns triggered by tensions between Russia and Ukraine sent oil prices to a high not seen since 2014.
Wall Street ended the day in mixed territory, spending most of the day up around 2%. Stocks lost this gains after the afternoon Fed policy update and a press conference by Fed Chairman Jerome Powell, who suggested that the Fed will push ahead with interest rate hikes.
The Dow Jones Industrial Average index fell 0.38%, while the S&P 500 fell 0.15% and the Nasdaq Composite added just 0.02%.
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The MSCI World Stock Index, which tracks stocks in 45 countries, was little changed.
In its latest policy update, the Fed said it is likely to raise US interest rates in March and reiterated plans to stop buying bonds this month before it starts cutting its assets significantly.
At a subsequent press conference, Powell warned that inflation remained above the Fed's long-term target and supply chain problems may be more pressing than previously thought. Stocks turned negative during his comments as some investors bet that the Fed would prioritise fighting inflation over ensuring sustainable economic growth.
"The market drew attention to the Fed chairman's emphasis on the inflationary side of the equation combined with his emphasis on a tight labour market. This means that the Fed may be comfortable with some reduction in the rate of overall economic growth," the report said. Russell Price, chief economist at Ameriprise Financial Services.
The Fed also said its policy-setting members had agreed on a set of principles for reducing its balance sheet, which should begin some time after interest rates begin to rise. The Fed's balance sheet roughly doubled during the pandemic to nearly $9 trillion as it bought bonds to help lower long-term interest rates to support the economy.
US Treasury bond yields rose after the release of the Fed report. The yield on 2-year US Treasury bonds reached its highest level since February 2020. The benchmark 10-year US bond yield rose to 1.8709% shortly after the Fed announcement.
The dollar hit a three-week high after the Fed news. The dollar index, which tracks the dollar against a basket of six currencies, rose 0.58%.
Spot gold prices fell 1.64% to $1817.31 an ounce.
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OIL HITS SEVEN-YEAR HIGH
Growing tensions over the concentration of Russian troops on the border with Ukraine continued to push up oil prices amid fears of supply disruptions, with oil at $90 a barrel for the first time since 2014.
US President Joe Biden said on Tuesday he would consider imposing personal sanctions on President Vladimir Putin if Russia invaded Ukraine, as Western leaders stepped up military preparations and made plans to protect Europe from a possible energy shock.
Brent crude rose 1.55 per cent to $89.57 a barrel. US crude rose 1.65% to $87.01 a barrel.
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Eleena Timmons