NEW YORK (AP) — The latest news from the Federal Reserve spooked investors Wednesday.
Stock and bond prices fell after minutes from the Fed’s latest meeting showed that the U.S. economy was improving steadily enough to warrant a reduction in its stimulus program.
The Fed has been buying $85 billion every month in Treasury and mortgage-backed bonds, which keeps long-term interest rates artificially low and makes stocks seem inexpensive in comparison to bonds.
“Investors need to be prepared to see the Fed wind down its program in the long term,” said Kristina Hooper, head of U.S. investment strategies for Allianz Global Investors.
The Fed’s economic stimulus has been a key driver of the stock market’s 25 percent surge this year, along with rising corporate profits and a recovering U.S. economy.
The Dow Jones industrial average lost 66.21 points, or 0.4 percent, to 15,900.82. It was up 20 points shortly before the minutes were released at 2 p.m. Eastern time.
The Standard & Poor’s 500 index was lost 6.50 points, or 0.4 percent, to 1,781.37. The Nasdaq lost 10.28 points, or 0.3 percent, to 3,921.27.
The market began the day higher after an encouraging report on retail sales and better news from long-struggling J.C. Penney.
Investors already know the Fed will reduce its economic stimulus eventually, yet they remain highly sensitive to concrete signals that a pullback is imminent and worry that the Fed might withdraw its support before the economy is ready.
Bond prices also declined. The yield on the benchmark 10-year Treasury note rose sharply, to 2.80 percent from 2.71 percent just before the minutes were released. That’s the highest since Sept. 17. Bond yields rise when demand for them falls.
The Fed’s next policy meeting is scheduled for Dec. 17-18. Investors are split on whether the bank will vote to pull back its bond purchases, or “taper” them, as it is sometimes called on Wall Street. The Fed surprised investors at its Sept. 17-18 meeting by keeping the bond purchases in place, despite widespread predictions that it would start to wind the program down.