US close: Markets sink as Fed minutes sound hawkish tone

Wall Street stocks closed in the red on Wednesday, with the Nasdaq turning in its worst performance in 11 months, after the latest Federal Reserve minutes suggested the central bank could move to shrink its balance sheet and raise rates faster than previously thought.

At the close, the Dow Jones Industrial Average was down 1.07% at 36,407.11, the S&P 500 lost 1.94% to 4,700.58, and the Nasdaq Composite was 3.34% weaker at 15,100.17.

The minutes from the latest Fed meeting revealed a more hawkish tone than previously communicated by the central bank, with some officials looking to raise interest rates faster and trim its $8.8trn balance sheet to combat spiralling costs of living.

“Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated,” the summary of the minutes read.

Fed policymakers agreed to hasten the tapering of its monthly asset purchases at the meeting in mid-December.

“The FOMC’s December discussions focussed on the danger posed by inflation running higher than expected for long enough to raise expectations, thereby threatening the medium-term price stability objective,” said Ian Shepherdson at Pantheon Macroeconomics.

“The Omicron Covid wave, just beginning at the time of the meeting, was not considered a big deal.

Shepherson noted that the Fed saw the inflation threat as coming from supply chain problems, alongside slower improvements in labour force participation than previously expected..

“FOMC members expect inflation to fall this year, but most have revised up their forecasts and believe the risks are mostly ‘weighted to the upside’.

Elsewhere on the economic front, the latest data from ADP showed a 807,000 jump in payrolls, roughly double the consensus forecast for an increase of 410,000, despite expectations that the spread of the Omicron variant of Covid-19 could keep a lid on hiring in December.

IHS Markit's services purchasing managers' index (PMI) for December, meanwhile, was revised up from a preliminary print of 57.5 to 57.6.

In equities, the motor manufacturing sector remained in focus, with Tesla falling 5.35% and Ford losing 2.67% after both saw successive gains in the prior two sessions.

It was the turn of General Motors to take the wraps off a new electric car, however, as the Detroit stalwart unveiled the plug-in Chevrolet Silverado pick-up truck - set to compete with the Ford F150 Lightning.

GM still followed its peers below the waterline, however, closing down 4.56%.

Elsewhere, Boeing slipped 0.26% even after major domestic ultra-low cost airline Allegiant confirmed an order for 50 of the company’s embattled 737 MAX narrowbody, with options for 50 more airframes.

Animal-free protein producer Beyond Meat slid 5.08% and fast food operator Yum! Brands was off 1.27%, despite the pair announcing a partnership that will see plant-based fried chicken rolled out to KFC restaurants in the US beginning next week.