Live updates: Stocks tumble after Fed takes historic action on inflation | CNN Business (2025)

US stockstumbled on Thursday amid investors’ fear that the Federal Reserve’s aggressive anti-inflation policy could send the economy towards recession.

The shock came after the central bank announced Wednesday afternoon that it would increase interest rates by three-quarters of a percent, the largest hike in 28 years.

The S&P 500 and Nasdaq are already in bear markets and the Dow dropped below the 30,000 benchmark today, its lowest level in a year.

Other economic data lowered market sentiment on Thursday. Housing starts fell by 14% in May, down 3.5% from the year before. The Philadelphia Fed Business Index, which measures changes in business growth, contracted in June for the first time in two years with a reading of negative 3.3.

As stocks settle after the trading day, levels might still change slightly.

US Federal Reserve Chair Jerome Powell speaks during a news conference at the Federal Reserve Building in Washington, DC, on June 15.

Jerome Powell conceded Wednesday that the Fed’s 75 basis point rate hike was “unusually large” and added that he did “not expect moves of this size to be common.” But the Fed chair also said that “either a 50 or 75 basis point increase seems most likely” at the central bank’s next meeting in July.

Investors are, to use a sports gambling phrase, taking the over.

According to Fed funds futures on the CME, traders are currently pricing in an 85% chance of another 75 basis point rate increase and only 15% odds of a 50 basis point hike. If the Fed again raises rates by 75 basis points, that would bring them to a range of 2.25% to 2.5%.

It’s stunning how quickly the market has gone from expecting the Fed to take a slow and steady approach to fighting inflation to the “it’s all hands on deck and we must put out the fire immediately!” mentality it’s exhibiting now.

Just last week, futures showed a less than 1% chance that rates would rise to the 2.25% to 2.5% level in June. The odds were at 0% a month ago.

So will the Fed really raise rates by three-quarters of a point two meetings in a row? It’s too soon to say. In case you haven’t heard, the Fed is still “data dependent.” (Powell used that phrase three times in Wednesday’s press conference.)

So investors need to keep watching the inflation data. The June consumer price index report will be released on July 13…two weeks before the next Fed rate announcement.

If prices, which soared 8.6% during the 12 months ending in May, continue to accelerate, then another 75 basis point increase seems all but certain. If inflation pressures finally start to cool, Powell may be able to once again take off his hawk costume and act more like a dove again.

There’s not a lot thatJoe Biden,Congressor theFederal Reservecan do to bring down therecord high gas prices. High gas prices themselves might do the job for them.

That’s because big swings in prices of a good or service are typically caused by an imbalance between supply and demand. And when the imbalances cause prices to soar, as has happened to gas and oil prices sinceRussia invaded Ukrainein February, those high prices can help rebalance supply and demand. How? By causing more supply and/or less demand.

Increasing energy supply, especially enough to rebalance markets, will be difficult. It would take many months, maybe years, to significantly increase US refinery capacity to match where it was before the pandemic. And oil companies seem committed to not flooding the market with oil, which could drive down prices. Instead, oil companies are using their windfall profits to increase share repurchases or dividends and help boost their stock prices.

So how about reducing demand? There are already signs that’s happening.

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Decades-high inflation ischangingUS consumers’ grocery habits.

Kroger, the nation’s largest grocery store chain, said Thursday that budget-constrained shoppers were buying fewer items in stores, favoring Kroger’s cheaper store brands instead of name brands, and switching from beef to pork.

“Rising inflation has consumers rethinking their shopping and eating habits,”Kroger(KR)CEO Rodney McMullen said on a call with analysts. “We are seeing different shopping behaviors based on how individual customers are experiencing the current inflationary environment.”

Kroger is the latest major chain to highlight consumer shifts in response to rising prices for food, gas, rent and other goods and services.

The company’s stock fell slightly today but has been one of the few bright spots for the stock market this year, surging 12%.

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People walk by the New York Stock Exchange on June 16.

The Dow fell by more than 800 points, tumbling below the key 30,000 level, as trader sentiment fell after Wednesday’s Federal Reserve announcement.

The Federal Reserve revised its outlook for GDP in 2022 downward and its outlook for unemployment and inflation upward this week, signaling that the economy is still weakening and that a soft landing will be difficult. “It is not going to be easy,” Fed Chair Jerome Powell warned Wednesday.

The S&P 500 and Nasdaq Composite are now both in bear markets, down about 23% and 34% from their highs in January of 2022 and November of 2021. The Dow is approaching bear territory, down about 19% from its recent highs.

“Markets believed and applauded Chairman Powell’s resolve to fight rising inflationary pressures,” said Quincy Krosby, chief equity strategist for LPL Financial in a note Thursday. “And that’s the problem.” Investors are now concerned that the Fed is hitting the gas too hard and might be headed towards a policy mistake.

Mortgage rates surged by more than half a percentage point this week amid rising inflation and an interest rate hike by the Federal Reserve, according to Freddie Mac. The jump is the largest one-week increase since 1987.

The 30-year fixed-rate mortgage averaged 5.78% in the week ending June 16, up from 5.23% the week before. Rates have risen more than two-and-a-half percentage points this year. They were at an average of 2.93% this time last year.

“These higher rates are the result of a shift in expectations about inflation and the course of monetary policy,” said Sam Khater, Freddie Mac’s chief economist. “Higher mortgage rates will lead to moderation from the blistering pace of housing activity that we have experienced coming out of the pandemic, ultimately resulting in a more balanced housing market.”

Rates have risen sharply since January, pushing the cost of financing a home up significantly.

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A customer pumps gas at an ExxonMobil gas station on June 9 in Houston, Texas.

The Energy Department sent an invitation to oil industry executives Wednesday night to meet next week to discuss high gas prices, an official familiar with the matter tells CNN.

The official said the invitation went out to the same seven oil companies that President Joe Biden wrote a letter to on Tuesday: Marathon Petroleum, Valero Energy, ExxonMobil, Phillips 66, Chevron, BP and Shell.

It’s not clear what the format of the meeting will be nor precisely when it will be held.

Representative for the oil industry did not immediately respond to requests for comment.

In the letter on Tuesday, Biden called for oil companies to boost supply of gasoline and slammed the high profit margins as “unacceptable” at a time when families are grappling with record-high prices.

Biden said he directed Energy Secretary Jennifer Granholm to hold an emergency meeting on the issue and to engage with the National Petroleum Council, an advisory committee representing the oil-and-gas industry.

The oil industry responded to Biden on Wednesday, pushing back on the president’s arguments.

“We are surprised and disappointed by the president’s letter,” Chet Thompson, CEO of the American Fuel & Petrochemical Manufacturers, said in a statement.

“Any suggestion that U.S. refiners are not doing our part to bring stability to the market is false,” Thompson said. “We would encourage the Administration to look inward to better understand the role their policies and hostile rhetoric have played in the current environment.”

A specialist trader works inside a booth on the floor of theNewYorkStockExchange on June 15.

US markets gave up yesterday’s gains this morning as investors further weighed the Federal Reserve’s messaging around the possibility of imminent recession.

Stocks soared immediately following the Fed meeting when Fed Chair Jerome Powell announced that the Fed would raise interest rates by 75 basis points and that another hike of 50 or 75 basis points would likely come in July, indicating his commitment to fight inflation.

But market sentiment soured Thursday morning as investors began to question whether the Fed could execute a soft landing and avoid recession, something that Powell said would be difficult to pull off.

The Dow dropped 737 points or 2.4%

The S&P 500 fell by 2.8%

The Nasdaq Composite tumbled by 3%

Traders work, as Federal Reserve Chair Jerome Powell is seen delivering remarks on a screen on the floor of theNewYorkStockExchange inNewYorkCity, on June 15.

That was fast. The Fed rally lasted all of two hours. US stocks are on track to open sharply lower.

In some ways this makes more sense than yesterday’s gains. The Fed’s aggressive rate hike, the biggest since 1994, does little to resolve the vast uncertainty facing the American economy right now.

Jay Powell declares war on inflation: The Fed chief was even more emphatic than in the past about just how seriously the central bank is taking both high prices and, importantly, inflation expectations. “We have to restore price stability. We really do. It’s the bedrock of the economy,” Powell said during the press conference. “If you don’t have price stability, the economy won’t work…Wages will be eaten up.” Not only did Powell concede that people hate inflation (“It’s really something people don’t like”), but he said the recent jump in consumer inflation expectations was “eye-catching” and forced the Fed to act.

Less emphatic about a soft landing: Powell said he believes it’s “possible” the Fed will achieve a “softish” landing – where inflation is tamed and a recession is avoided. However, Powell conceded that task has become more challenging and there is a “much bigger chance now that it’ll depend on factors that we don’t control.” He added, “fluctuations and spikes in commodity prices could wind up taking that option out of our hands.” Powell said, “We just don’t know.”

Fed GDP tracker flashes red: The ugly May retail sales report – the first decline since last December – has forced economists to mark down their GDP estimates. As of yesterday, the Atlanta Fed’s GDPNow model is estimating second-quarter growth at zero, down from 0.9% a week ago.

The bear run in the broader stock market, meme meltdown and crypto crash of 2022 is making life miserable for most investors. And that’s really bad news for brokerage firm Robinhood.

Shares of Robinhood (HOOD) were down more than 2% in premarket trading Thursday. That follows a 2.5% drop Wednesday that sent Robinhood to its lowest price ever.

The stock has now plunged more than 60% this year. Robinhood is trading more than 80% below its initial public offering price of $38 a share and more than 90% below its all-time high of $85 from last summer.

Investors are worried about how the chaos on Wall Street will hurt Robinhood. Younger Gen Z and Millennial traders are in the midst of their first real major bear market. (There was a short-lived pullback at the beginning of the pandemic in March 2020.)

It’s not clear whether Robinhood’s massive drop will make it an attractive takeover target. Would a larger investment bank want access to the company’s nearly 16 million monthly active users? That figure fell 10% in the first quarter compared to a year ago.

The company has already announced a round of layoffs. And the stock has lost all the gains it got in early May after crypto billionaire Sam Bankman-Fried of brokerage firm FTX disclosed that he bought a 7.6% stake in Robinhood.

But there is some hope that it may soon hit bottom. Robinhood, which has a market cap of about $5.9 billion, is now trading to a discount to the amount of cash it has on its balance sheet. Robinhood ended the first quarter with $6.2 billion in cash.

To summarize Fed Chairman Jay Powell’s comments on the economy Wednesday: Inflation’s bad. We’re doing our best. No one really knows what the heck is going on.

Here’s the deal: The disastrous inflation report that came out Friday almost guaranteed that the Fed would have to do more than the half-point hike it had previously indicated it would do. Prices surged 8.6%, which was up from the month before, which means, like, they’re going the wrong direction. That report was so bad some analysts even expected Powell & his merry economists to go even harder on rate hikes – why stop at 0.75, just go whole hog and jack them up a full point?

The answer is because he didn’t want to scare the crap out of investors who’ve just bellyflopped straight into a bear market.

Nevertheless, some investors fear that the Fed should have just ripped the Band-Aid off, and markets are falling for two, contradictory reasons: They doubt that the Fed is doing enough to stop inflation. And they worry the Fed is doing too much, too fast, to keep America’s economy humming.

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U.S. stock futures tumbled a day after the Fed issued a historic rate hike to gain control of inflation.

Stocks rose sharply Wednesday following the biggest rate increase in 28 years, but investors now fear it may not be enough to tame inflation – and may crash the US economy into a recession.

Dow futures were down 570 points or 1.9%.

S&P 500 futures fell 2.3%.

Nasdaq futures were 2.8% lower.

The United Kingdom’s central bank hashiked interest ratesfor a fifth time since December in a bid to tame spiraling inflation.

The Bank of England said on Thursday that it would raise the cost of borrowing by 25 basis points to 1.25% despite fears that soaring prices are squeezing households andweighing on economic growth.

“Bank staff now expect GDP to fall by 0.3% in the second quarter as a whole, weaker than anticipated at the time of the May Report,” the Bank of England said in a statement.

“Consumer confidence has fallen further, but other indicators of household spending appear to have held up. Some indicators of business sentiment have weakened, although they have so far remained more resilient than indicators of consumer confidence and consistent with positive underlying GDP growth,” it added.

Soaring food and fuel prices have plunged millions of Britons into theworst cost-of-living crisis in decades. Annual consumer price inflation rose to 9% in April — itshighest since 1992— and is expected torise slightly above 11% in October, with energy costs driving the increase.

European markets and US stock futures fell Thursday, a day after the Fed got tough on inflation with itsbiggest rate hike since 1994.

France’sCAC 40(CAC40)and Germany’sDAX(DAX)were both down 1.3% in early trade, while theFTSE 100(UKX)slipped 1.5%.

Japan’sNikkei 225(N225)and Korea’sKospi(KOSPI)closed up 0.4% and 0.2%, respectively. But, China’sShanghai Composite(SHCOMP)was down 0.6% at the end of the day. Hong Kong’s Hang Seng Index was the biggest loser in the region, down 2.5% in late afternoon trading.

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