US stocks closing lower after Fed rate decision

New York – Stock indexes are closing lower on Wall Street after a getting a brief boost Wednesday from the Federal Reserve’s decision to leave interest rates unchanged at nearly zero. The central bank also issued a less dire outlook for economic growth and unemployment.

The S&P 500 was down 0.5% after having been up 0.6% following the 2 p.m. Eastern Fed announcement.

Technology stocks led the slide, outweighing gains in financial, industrial and energy companies. Package delivery giant FedEx surged after the boom in online shopping during the pandemic drove stronger profit growth than expected in its latest quarter.

The Dow Jones Industrial average was still up 82 points, or 0.3%, to 28,078. It had earlier been up more than 350 points. The Nasdaq fell 1.1%.

Treasury yields were mixed after an early slide following a report showing U.S. retail sales rose less last month than expected.

The Fed said it has adjusted its inflation target to seek price increases above 2% annually, a move that will likely keep interest rates low for years to come. Fed officials also indicated in a set of economic projections that they expect the rate to stay there at least through 2023. That interest rate influences borrowing costs for homebuyers, credit card users and businesses.

“The Fed’s statement today is an affirmation to market participants that a risk-on strategy will continue to be supported by the Fed,” said Lindsey Bell, chief investment strategist at Ally Invest. “This is apparent in their signaling that rates could stay low through 2023 and a reiteration of their shift in focus to inflation and long-term inflation.”

Fed chair Jay Powell said that the economy has recovered more quickly than the Fed had expected. The Fed updated its forecast for GDP to a decline of 3.7% this year compared to a June forecast of a 6.5% drop. On employment, the Fed projected an unemployment rate at the end of the year of 7.6% instead of the 9.3% it projected in June.

Powell acknowledged the economic outlook remains highly uncertain, and heavily dependent on the U.S. getting control of the pandemic.

“A full economic recovery is unlikely until people are confident that it is safe to re-engage in a wide variety of activities,” Powell said.

One of the primary reasons Wall Street has roared back to record heights despite the still-raging pandemic is the immense aid from the Federal Reserve. The central bank has cut short-term rates to nearly zero and is buying all kinds of bonds to support markets. Last month, Powell outlined a new strategy of providing support even if inflation rises above its target level.

“Don’t fear the Federal Reserve, and don’t fear them making a policy mistake that hurts economic expansion any time in the next three years,” said Mike Zigmont, director of trading and research at Harvest Volatility Management.

Technology stocks accounted for a big slice of the market’s afternoon pullback, outweighing gains in financial, industrial and energy companies. Smaller stocks were climbing more than the rest of the market, and the Russell 2000 index of small-caps was up 1.3%.

FedEx rose 5.5% after reporting stronger profit growth for the latest quarter than analysts expected. The boom in online shopping caused by the coronavirus pandemic has helped its revenue climb. The company said that the growth it expected to see over the next three to five years has happened in just three to five months.

Wall Street got off to a strong start this week following a tumultuous two-week stretch where high-flying technology stocks abruptly lost their momentum. Big Tech stocks soared through much of the pandemic as investors increasingly bet their strong growth will continue as more of everyday life shifts online.

The gains were so powerful and consistent for these superstar stocks that critics warned they had become too expensive, and they tumbled sharply after carrying the S&P 500 to a record on Sept. 2. Their strong growth should continue to look attractive to investors in a slow-growth economy with ultra-low interest rates.

The economy has made some improvements since the worst of the lockdowns in the spring, but the budding recovery has been fitful. Investors say the economy and markets still crucially need all the support they can get from the Federal Reserve, as well as Congress.

“If coronavirus disappears then we’re dealing with normal risks,” Zigmont said. “If it resurges, all the usual things that investors take into account, all the projections for the next two years go out the window.”

Federal unemployment benefits and other Congressional aid for the economy approved earlier this year have expired, but partisan disagreements on Capitol Hill have prevented a renewal.

A report on Wednesday showed that U.S. retail sales strengthened last month, but less than economists expected. At least part of the shortfall is likely because unemployed workers are no longer getting the $600 boost to their weekly checks that used to come from the federal government.

Treasury yields dipped following the retail sales report, but inched higher after the Fed statement. The yield on the 10-year Treasury was at 0.69% from 0.68% late Tuesday.

Earlier, a separate report from the Organization for Economic Cooperation and Development had said the global economy is not doing as badly as previously expected, especially in the United States and China. It projected the world’s economy will shrink by 4.5% this year, less than the 6% plunge it had predicted in June.

Stock markets in Europe finished mostly higher. The German DAX rose 0.3% and the French CAC 40 rose 0.1%. The FTSE 100 in London fell 0.4%. Markets in Asia ended mixed.

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AP Business Writer Elaine Kurtenbach contributed.