Financial Markets                      09/16 15:51

   

   NEW YORK (AP) -- U.S. stocks slipped Wednesday after the Federal Reserve 
hiked its main interest rate for the first time in three years and suggested 
more may be ahead as it tries to get the nation's high inflation under control.

   The S&P 500 fell 0.4% after giving up a modest gain from earlier in the day. 
The Dow Jones Industrial Average dropped 631 points, or 1.2%, and the Nasdaq 
composite was nearly unchanged after edging down by less than 0.1%.

   Investors generally prefer lower interest rates because higher rates slow 
the economy's growth and undercut prices for stocks and other investments.

   The U.S. stock market initially held onto its modest, early gains after the 
Fed announced its decision. The short-term pain of a slower economy may be 
worth it if it starves inflation of its fuel and gets further increases for the 
cost of living back to the Fed's 2% target.

   But stock prices weakened later in the day as Fed Chairman Kevin Warsh said 
repeatedly in a press conference that inflation remains too high and the U.S. 
economy appears to be strengthening. That could imply the economy is solid 
enough to withstand more hikes to rates, and other officials at the Fed 
provided their own forecasts suggesting rates may need to go still higher.

   The median Fed official expects the federal funds rate to end this year at 
4.1%, according to forecasts published after the central bank's meeting. That's 
up from its current range of 3.75% to 4% following Wednesday's increase, and 
it's up from the median forecast of 3.8% that Fed officials gave three months 
ago.

   Traders, meanwhile, suspect the Fed may go even further. They're betting on 
a 38% probability the Fed could hike the federal funds rate to a range of 4.25% 
to 4.50% by the end of the year, according to data from CME Group.

   "Our decision comes at a time when the American economy appears to be 
strengthening," Fed Chairman Kevin Warsh said in his press conference.

   He pointed to solid U.S. hiring trends, corporate profits and investments by 
businesses. A report on Wednesday morning, meanwhile, showed shoppers spent 
much more at U.S. retailers last month than economists expected.

   "The plain fact is that inflation is too high and has been for too long," 
Warsh said. He later added, "Today's action starts to show we're serious about 
this."

   It's the first hike by the Fed to interest rates in three years. The central 
bank had been on pause for months following cuts to rates in 2024 and 2025, 
even though inflation has consistently remained above the Fed's 2% target.

   President Donald Trump has been lobbying for interest rates to go lower 
rather than higher.

   On Wall Street, bank stocks fell to some of the market's sharper losses. A 
slower U.S. economy could mean less demand for loans from them. Banks also get 
hurt when the gap narrows between short-term interest rates and longer-term 
ones because the industry makes profit off the difference.

   Following the Fed's announcements, the two-year Treasury yield jumped to 
4.74% from 4.67% late Tuesday. It tends to closely follow expectations for what 
the Fed will do with the federal funds rate.

   The yield on the longer-term 10-year Treasury, meanwhile, takes into account 
expectations for economic growth and inflation years down the line. It had a 
more modest increase, ticking up to 5.01% from 5.00% late Tuesday.

   Huntington Bancshares fell 5.6%, Citizens Financial Group sank 4.8% and 
JPMorgan Chase slipped 1%.

   The largest loss in the S&P 500 came from J.B. Hunt Transport Services, 
which lost 13.3%. Its chief financial officer told a conference of analysts 
late Tuesday that it's facing higher costs and expects its earnings to drop 5% 
to 10% from the second quarter to the third.

   Stocks of oil companies also weighed on the market after the price for a 
barrel of Brent crude fell 2.7% to $105.83. It was the first drop of the week 
for Brent, which has gotten near $110 in recent days.

   Helping to limit the market's losses were gains for some influential stocks 
in the artificial-intelligence industry.

   Nvidia rose 0.8%, and Advanced Micro Devices climbed 1.6% to recover more of 
their losses from earlier in the week. AI stocks slid worldwide Monday after 
leaders of the AI industry called for a slowdown in development to address 
safety issues for humanity.

   All told, the S&P 500 fell 33.92 points to 7,551.81. The Dow Jones 
Industrial Average dropped 631.21 to 51,461.90, and the Nasdaq composite 
slipped 3.15 to 25,978.42.

   In stock markets abroad, indexes rose across much of Europe and Asia. South 
Korea's Kospi climbed 1.4% for one of the world's biggest gains.

   Inflation is a worldwide problem, and the European Central Bank hiked rates 
last week to help diminish it.

   ___

   AP Business Writers Chan Ho-him and Michelle Chapman contributed to this 
report.

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