U.S. stocks snapped a two-day rally after Federal Reserve Chair Jerome Powell reiterated his hawkish stance but signaled the central bank is getting “close” to reaching the end of a tightening cycle that pushed rates from near zero to 4.5 per cent since March.

While Wednesday’s volatile session saw the S&P 500 and the Nasdaq 100 swing between gains and losses, the indexes ended lower after the Fed raised rates by half a percentage point and signaled more increases are to come. The hawkish decision and subsequent comments from Powell likewise whipsawed Treasuries, with rates spiking higher before coming back to pre-decision levels. The dollar dropped for a second session.

Powell indicated the Fed intends to keep at its battle with inflation, as officials projected rates would end next year at 5.1 per cent. But his assertion that the cycle could be near an end was enough to ease the worst of the stock declines on Wednesday. The Fed also projects economic growth to slow to next year, with inflation remaining well above its 2 per cent target. 

 “Powell was crystal clear that the Fed is basically indifferent to inter-meeting moves in financial conditions but that they control those conditions over time,” said Gerard MacDonell of 22V Research.

Some investors saw the silver lining in Powell’s remarks. 

“The most encouraging of Powell’s comments is the acknowledgment of how core inflation is coming down more than expected as evidenced by new rental leases coming at levels significantly below data being used to calculate core consumer price index,” said Bryce Doty, senior vice president at Sit Investment Associates. “This is a big deal given that housing is the largest component of core CPI. Therefore, we wouldn’t be surprised if Powell uses this as a primary reason for halting rate increases at their May meeting.”

Key events this week:

• China medium-term lending, property investment, retail sales, industrial production, surveyed jobless, Thursday
• ECB rate decision and ECB President Lagarde briefing, Thursday
• Rate decisions for UK BOE, Mexico, Norway, Philippines, Switzerland, Taiwan, Thursday
• U.S. cross-border investment, business inventories, empire manufacturing, retail sales, initial jobless claims, industrial production, Thursday
• Eurozone S&P Global PMI, CPI, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.6 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 0.8 per cent
• The Dow Jones Industrial Average fell 0.4 per cent
• The MSCI World index rose 1.1 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.3 per cent
• The euro rose 0.4 per cent to US$1.0679
• The British pound rose 0.5 per cent to US$1.2424
• The Japanese yen rose 0.2 per cent to 135.26 per dollar

Cryptocurrencies

• Bitcoin was little changed at US$17,772.42
• Ether fell 0.9 per cent to US$1,308.22

Bonds

• The yield on 10-year Treasuries declined three basis points to 3.47 per cent
• Germany’s 10-year yield advanced one basis point to 1.94 per cent
• Britain’s 10-year yield advanced one basis point to 3.31 per cent

Commodities

• West Texas Intermediate crude rose 2.7 per cent to US$77.42 a barrel
• Gold futures fell 0.3 per cent to US$1,819.90 an ounce