Stocks finished lower Wednesday amid a hawkish tone from the Federal Reserve following its highly-anticipated rate December rate hike and suggestions that it will hold rates at a higher level, and for a longer period of time, over the second half of next year.
The Fed lifted its Fed Funds rate by 50 basis points to a range of 4.25% to 4.5%, the highest since 2008, and said ongoing be needed in order to combat the fastest inflation in nearly four decades.
The so-called Dot Plots, which illustrate the views of the Fed's 18-member rate-setting committee, indicate a terminal Fed Funds rate of around 5.1% by the spring, a level that it plans to hold until the end of the year.
Chair Jerome Powell hinted earlier this month that this so-called terminal rate could be higher than markets are currently forecast, and higher than the 4.625% predicted by the 'dot plot' published in September.
However, Committee members had expressed the need for smaller rate increases as they track their cumulative impact on the economy, suggesting the prospect of a lower terminal rate from at least a portion of the group.
Socks turned lower following the Fed decision, with the Dow Jones Industrial Average ending down 142 points, or 0.42%, at 33,965, while the S&P 500 finished 0.61% in the red. The tech-focused Nasdaq fell 0.76%.
Benchmark 10-year Treasury note yields dipped to 3.479% while 2-year notes eased to 4.222%. The U.S. dollar index, meanwhile, was marked 0.04% lower at 103.59 in the wake of the Fed announcement and prior to Powell's press conference in Washington.
A softer-than-expected inflation reading for the month of November triggered a big boost in investor sentiment Tuesday, while setting up hopes for a dovish Fed decision today, after core consumer prices rose at their slowest pace in nearly two years while headline CPI declined for a fifth consecutive month amid a pullback in gas prices, used cars and airfares.
Global oil prices moved higher following a report from the International Energy Agency that indicated firmly global demand heading into next year as China's economy reopens and sanctions limit the sale of Russian crude.
The Paris-based IEA said global demand is likely to rise to around 101.6 million barrels per day next year, a level that falls largely in-line with forecasts published yesterday by OPEC. Global production, however, is likely to exceed demand over the first few months of next year, helping overall supplies thanks in part to record output rates from the U.S. and Saudi Arabia.
Energy Department data, however, showed a bigger-than-expected increase in domestic crude stocks, which rose by 10.2 million barrels last week, keeping broader market gains in check.
Brent crude contracts for February delivery, the global benchmark, were last seen $2.14 higher on the session at $82.82 per barrel while WTI contracts for January were marked $2 higher at $77.39 per barrel.
Overnight in Asia, stocks were modestly higher amid optimism that China's ongoing loosening of Covid restrictions will rekindle consumer and business activity in the world's second-largest economy, although a closely-tracked survey of short-term economic projections from Japan showed a pullback in sentiment that suggests firmer headwinds in the region heading into the start of next year.
The region-wide MSCI ex-Japan index was marked 0.98% higher heading into the close of trading while the Nikkei 225 closed 0.72% higher in Tokyo.
In Europe the region-wide Stoxx 600 was marked 0.02% lower by the close of trading while London's FTSE 100 fell 0.02% as both markets braced for interest rate decisions from the European Central Bank and the Bank of England tomorrow in Frankfurt and London respectively.
