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U.S. stocks close lower

NEW YORK — Stocks closed lower on Wall Street Wednesday after a rally following the Federal Reserve’s latest interest rate policy update faded in the final hour of trading.

The S&P 500 fell 0.5% after having been up 0.6% following the 2 p.m. Eastern time Fed announcement. The central bank signaled it will keep interest rates near zero into 2023 and issued a slightly less dire outlook for economic growth and unemployment this year.

The Fed’s decision to leave rates unchanged had been widely expected by Wall Street and continues the central bank’s policy of unprecedented support for financial markets since the pandemic knocked the economy into a recession.

“The Fed confirmed what we all thought, rates at 0% are here to stay, probably for years,” said Ryan Detrick, chief market strategist for LPL Financial. “A better economy and a dovish Fed, that is a nice combo.”

The S&P 500 lost 15.71 points to 3,385.49. The Dow Jones Industrial average rose 36.78 points, or 0.1%, to 28,032.38. It had earlier been up by 369 points. The Nasdaq composite lost 139.85 points, or 1.3%, to 11,050.47.

Smaller stocks rose more than the rest of the market, and the Russell 2000 index of small-caps gained 14.17 points, or 0.9%, to 1,552.33.

The market’s pullback snapped a three-day winning streak for the S&P 500, which is down 3.3% so far this month after five-straight monthly gains.

One of the primary reasons Wall Street has roared back to record heights this year 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, Fed chair Jay 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.

“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.”

Powell said Wednesday 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.

Still, 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.

The economy has improved fitfully since the worst of the lockdowns in the spring. Investors say the economy and markets still crucially need all the support they can get from the Federal Reserve and Congress.

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