Major U.S. stock indexes plummeted on Wednesday on the news that the Federal Reserve would raise interest rates, an announcement that investors expected from the central bank but that nonetheless defied objections from President Trump.
The Dow Jones Industrial Average closed down 351 points to 23,323, a new low for 2018, after rising nearly 350 points earlier in the day. The Nasdaq decreased 147 points, while the broader S&P was down nearly 40 points.
The increase of a quarter of a percentage point, the fourth rate hike of the year, puts short-term interest rates at an upward limit of 2.5 percent.
Amid the volatility in the markets, Federal Reserve Chairman Jerome Powell told reporters he expects economic growth to moderate next year due to “crosscurrents.” Responding to Trump’s criticism of the central bank’s decision-making, Powell said politics “play no role whatsoever in our decisions about monetary policy.”
While investors reacted negatively to the news, consumers are unlikely to feel a significant impact, according to Robert Frick, corporate economist with Navy Federal Credit Union.
“Long-term rates, such as for mortgages, are not much affected by the federal funds rate,” he said in an emailed statement. “Consumers should also remember that rate hikes also benefit them with higher interest paid on bank accounts, from money market accounts to certificates of deposit.”
Among the other concerns driving nervousness among investors are the continued negotiations between the U.S. and China over a broader trade deal. The White House has warned it is prepared to levy tariffs on an additional $267 billion, as well as raise tariffs on the existing $200 billion in Chinese goods from 10 percent to 25 percent, if an agreement is not reached.
