The S&P 500 Index of the New York Stock Exchange closed lower on Tuesday as investors awaited the outcome of a two-day monetary policy meeting by the Federal Reserve.
The US stock market lacked direction for much of the day. The S&P 500 and the Dow Jones Industrial Average closed at record highs the previous session due to a $1.9 trillion fiscal stimulus package. Besides, vaccination reinforced the sentiment that the economy is on the recovery.
At the same time, fears of an overheating economy and the recent rise in interest rates have raised scrutiny on the Fed’s two-day meeting. Policymakers will likely raise economic forecasts and repeat their promise to remain flexible for the foreseeable future. Tom Martin is a Senior Portfolio Manager at Global Investments. According to him, this Fed meeting is one of the most important for the market in a long time. A recovering economy, leaking inflation, and a stock market hitting high levels don’t seem to make much of a formula for easy monetary policy. However, the Fed finds itself in that position.
The Fed is facing one of the most critical events
The challenge for the Federal Reserve this week will be to explain that position to investors. The central bank will have to convince them that even if the status quo remains, that won’t make policymakers change course, nor should they.
Inflation has already become a problem for the Fed, with rising bond yields and market pricing growing to the highest level in almost 13 years.
This week’s meeting is called one of the most critical events for the Fed in some time.
Bill English is a finance professor at the Yale School of Management. As a former head of the Fed’s Division of Monetary Affairs, he stated that everything looks a little better. Still, there is a lot of uncertainty. It is a tricky communication since the Fed wants to suggest things better, but they don’t want to change policy anytime soon, he stated.
Data showed that retail sales fell more than expected in February due to severe cold across the country. Another report indicated that winter storms in Texas caused a decline in production at US factories last month.
The Dow Jones Industrial Average dropped 128.3 points, or 0.39%, to 32,825.16 units. Meanwhile, the S&P 500 lost 6.37 points, or 0.16%, to 3,962.57 units. The Nasdaq Composite fell 11.86 points, or 0.09%, to 13,471.57 units.
The S&P 500 energy index plummeted after falling oil prices.