Wall Street stocks end lower post-FOMC

• The Fed says that inflation is expected to remain high. 
• US stocks fall as investors drop riskier assets for cash.

The three main indices traded lower on Wednesday. The S&P 500 dropped 0.72% to 2,635.67. The Dow Jones Industrial Average lost 0.72% and closed at 23,924.84 while the Nasdaq Composite Index fell 0.42% to 7,100.90. 

The Federal Reserve Bank kept its target rate for overnight deposit with commercial banks unchanged at 1.5% to 1.75% and said that inflation is on the rise. The Fed said “overall inflation and inflation for items other than food and energy have moved close to 2%" which is more hawkish than at the previous meeting where the Fed said that “the indicators have continued to run below 2%”. This detail is quite significant as 2% is the Fed’s target in which it can justify rate hikes. 

The Fed says that "inflation on a 12-month basis is expected to run near the Committee's symmetric 2% objective over the medium term,". In March, the FOMC projected the inflation to "move up in coming months." The Fed has now a clearer time horizon as opposed to a more vague language last month. Indeed, the Core Personal Consumption Expenditures index rose to 1.9% in March which is the highest level since February 2017. However, average hourly earnings have stayed below 3% throughout the economic recovery. The wages should rise as unemployment falls, but that has not happened yet. Additionally, the Fed mentioned some improvement in the economy “business fixed investment continued to grow strongly." 

Meanwhile, as rates are set to go higher, investors are starting to get rid of risky assets such as stocks as cash yields interest rates. 

S&P 500 daily chart