Fed’s Wednesday meeting sets off a volatile Friday trading session

• All major indices headed for losses for the week

• Investors weighed the potential consequences of the Fed’s decision raising interest-rates

Friday’s trading session reflected volatility among stocks as investors weighed the potential consequences of the U.S. Federal Reserve’s decision on bond tapering and possible raise interest-rate increases.

The tech-heavy Nasdaq Composite dropped 28 points, or 0.2%, to 15,152, after struggling to cling to gains in late afternoon trading. The S&P 500 fell by 42 points, 0.9%, and settled at 4,627, after rebounding from an intraday low of 4,600.22. The Dow was down by almost 473 points, or 1.3%, to 35,425, after earlier touching an intraday low at 35,284.

For the week, all three indices headed for losses with the Nasdaq Composite leading with a 3.1% decline. The Dow was heading for a loss of 1.5% while the S&P 500 was on track for a 1.8% drop.

On Wednesday, the Federal Reserve said it would end its bond purchases in March 2022 and will gradually increase the interest rates by the end of the following year, signaling that the inflation target has been met.

Also Read: Fed to wind-down bond purchases, signals three rate hikes in 2022

In the new economic projections, the Fed forecasts that inflation would run at 2.6% next year, compared to the earlier prediction of 2.2%, and the unemployment rate would fall to 3.5%.

Federal Reserve officials continue to attribute the inflation jump to strong consumer demand for goods, supply chain bottlenecks, and the semiconductor shortage. Despite that, the inflation burst has been stronger than what was anticipated.

Data released on Friday, last week, revealed that the consumer price index (CPI) had jumped to 6.8% year on year in November.

The Labor Department also reported that the producer price index for final demand climbed 0.8% last month. Final demand prices moved up 0.6% in each of the 3 prior months.

The PPI increased 9.6% year on year through November, the largest year-on-year increase since November 2010. 

New restrictions brought into force due to the spread of the Omicron coronavirus variant add uncertainty to the Fed’s plan to “normalize” monetary policy following nearly two years of extraordinary efforts to guide the U.S. economy through the pandemic.

The yield on the 10-year Treasury note in the bond markets was down about one basis point at 1.41% Friday afternoon.

Also Read: Yellen says lowering tariffs on imported Chinese goods could ease price pressures

FedEx rose 5.4% after reporting a jump in revenue due to higher shipping rates that helped ease rising costs tied to a labor shortage.

Rivian Automotive’s shares dropped 9% after its first quarterly report as a public company.

The Bank of England also raised interest rates, on Thursday. It said, it would phase out an emergency bond-buying program while ramping up other stimulus measures.

Also Read: Port shutdowns amid delta variant’s spread weigh heavily on strained global supply chains

Inputs from WSJ