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The stock market continues to drop Monday as traders gear up for the Federal Reserve’s interest rate decision later this week.
Dow Jones Industrial Average
has fallen 61 points, or 0.2%, while the
has dropped 0.3% and the
has declined 0.4%.
Monday’s early drop continues a decline that began earlier this month. The S&P 500 comes into Monday down almost 6% since Sep. 12, when August’s hotter-than-expected inflation report spurred bets that the Fed would lift the federal-funds rate by at least three-quarters of a percentage point and possibly a full percentage point. Citi economists expect the Fed to boost rates by 75 basis points, saying that a hike of 100 basis points was possible though not likely.
“A surprisingly large 100bp hike would be one way to send a strong, hawkish message, but we think most Fed officials will judge the potential costs as outweighing the benefits,” economists said. “Financial conditions broadly tightened significantly following last week’s inflation data and there is not the same need to push against a loosening of conditions that the Fed faced as equity prices rallied over the summer.”
Overall, though, stock traders have heard the Fed loud and clear—and are doing some selling ahead of the Fed’s decision Wednesday. It’s now well understood that the Fed will lift rates aggressively, but the question now is when the pace of rate hikes will slow down. The fear for the moment is that a slowdown isn’t coming soon, so markets will be listening for forward-looking comments from Fed Chair…