Posted on: Wednesday, March 23, 2005
Fed's inflation statement prompts massive selloff
By Michale J. Martinez
Associated Press
NEW YORK — Investors pulled their cash out of the stock market yesterday, leaving prices sharply lower after the Federal Reserve confirmed Wall Street's fears that inflation poses an increasing threat to the economy.
But in its policy statement, the Fed noted that "pressures on inflation have picked up in recent months," which analysts said was a sign that inflation could be a growing problem for the economy.
"The Fed conceded that there's a bit more inflation in the near term than people were expecting to hear about," said Jack Caffrey, equities strategist at J.P. Morgan Private Bank. "And if you get short-term inflation, there's the danger of it extending into the long term, and that means higher interest rates and lower multiples for equities."
The Fed, however, kept its "measured pace" language, which Wall Street has taken to mean steady quarter percentage point rate hikes in the future.
Oil prices fell substantially in what traders said was profit-taking ahead of today's inventory report from the U.S. Energy Department.
Bonds also sold off sharply after the Fed's announcement.
Declining issues outnumbered advancers by nearly 5 to 2 on the New York Stock Exchange, where preliminary consolidated volume came to 2.13 billion shares, compared with 1.84 billion on Monday. The Russell 2000 index was down 2.99, or 0.48 percent, at 618.58.
As expected, the Fed's Open Market Committee raised the nation's short-term benchmark interest rate by a quarter percentage point to 2.75 percent.
