Fed Rate Hike Warning Hits Wall Street Hard

US stocks ended down sharply on Wednesday after US Federal Reserve meeting minutes signalled the central bank may have to raise interest rates sooner than expected.

The S&P 500 and Nasdaq quickly extended their declines after the minutes, which investors viewed as more hawkish than they had feared. The Dow, which hit a record high earlier in the day, reversed course and also closed lower.

The minutes from the Fed's December 14-15 policy meeting offered more details on the central bank's shift last month toward a tighter monetary policy to curb inflation. Policymakers said last month that the US labour market was "very tight."

"This is more hawkish than expected. This shift towards hawkishness could be problematic for both stock and bond markets," said David Carter, chief investment officer at Lenox Wealth Advisors in New York.

The S&P 500 technology sector was the biggest drag on the S&P 500, while rate-sensitive real estate sector led declines among sectors.

The Dow Jones Industrial Average fell 1.07 percent, to 36,407; the S&P 500 lost 1.94 percent, to 4,701; and the Nasdaq Composite dropped 3.34 percent, to 15,100 – led downward by shares of technology titans Apple, Google parent Alphabet, Amazon, Meta Platforms and Microsoft.

Rising interest rates increase borrowing costs for businesses and consumers. Higher rates can depress stock multiples, especially for technology and other growth stocks.

Policymakers had agreed to hasten the end of their pandemic-era programme of bond purchases, and issued forecasts anticipating three quarter-percentage-point rate increases during 2022. (Reuters)