Wall Street lukewarm on Fed's slower rate hike

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By Lawrence Delevingne

(Reuters) - Wall Street stocks dipped on Wednesday, while Treasury yields were flat and the dollar edged up, after the U.S. Federal Reserve announced that it would raise interest rates by half a percentage point, the move expected by financial markets.

The Fed also projected at least an additional 75 basis points of increases in borrowing costs by the end of 2023 as well as a rise in unemployment and a near stalling of economic growth.

The market's lukewarm reaction comes a day after stocks rallied and the U.S. dollar fell sharply, as consumer price data showed a slowdown in inflation.

The U.S. consumer price index increased 0.1% last month, 0.2 percentage point slower than economists had expected. In the 12 months through November, headline CPI climbed 7.1% - its slowest pace in about a year. British inflation also moderated more than anticipated in November, data on Wednesday showed.

Following the Fed announcement, the Dow Jones Industrial Average was down 0.2%, the S&P 500 lost 0.4%, and the Nasdaq Composite dropped 0.6%.

The MSCI All World stock index was also down 0.2%. It had jumped more than 1% the previous day.

In currency markets, the dollar index was still down 0.5% on the day, with the euro up 0.2% to $1.0651. The Japanese yen weakened 0.04% versus the greenback at 135.61 per dollar, while Sterling was last trading at $1.2383, up 0.23% on the day.

"It was pretty much right on target with what was expected," said Randy Frederick, managing director of trading and derivatives at Charles Schwab (NYSE:SCHW) in Austin, Texas. "If the markets closed positive today or modestly lower, that would be a very positive development."

European stocks were flat, with the continent-wide Stoxx 600 down 0.02% after rising 1.3% in the previous session.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan rose nearly 1%, with easing Chinese COVID-19 curbs boosting sentiment.

"It's hard to see where more good news is going to come from on the inflation front," Jonas Goltermann, senior global markets economist at Capital Economics, said earlier in the day. "The question for next year is are we going to get all the way back down to 2%."

The median projection in September was for a peak in the Fed funds rate of around 4.6% next year, but some analysts think the Fed could go higher.

The yield on benchmark 10-year U.S. Treasuries rose 2 basis points to 3.481% after tumbling 11 basis points on Tuesday. Yields move inversely to prices.

COMMODITIES HOLD GAINS

In commodities, oil prices rose again on Wednesday after OPEC and the International Energy Agency forecast a rebound in demand in the next year and on hopes of a slowdown in U.S. rate hikes alongside inflation.

U.S. crude rose 2.33% to $77.15 per barrel and Brent was at $82.56, up 2.33% on the day.

Expectations for a less aggressive monetary policy by the Fed also helped gold prices hold above the $1,800 per ounce pivot. Spot gold dropped 0.5% to $1,801.18 an ounce following the Fed announcement.

Bitcoin rose slightly despite the arrest of FTX exchange founder Sam Bankman-Fried, who was accused by U.S. prosecutors of fraud. It was last up 0.8% at $17,921.