Stocks Tumble as Most Fed Officials Say Tapering Can Begin This Year

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Stocks finished sharply lower Wednesday after minutes from the latest Federal Reserve meeting showed that central bank officials said more progress was needed in the employment market before it considered tapering stimulus, but most said “it could be appropriate to start reducing the pace of asset purchases this year.”

The Fed, in the minutes from its July 27-28 meeting released Wednesday, said its inflation goal had been met but its employment criteria had not.

“Most participants judged that the Committee’s standard of ‘substantial further progress’ toward the maximum-employment goal had not yet been met,” the minutes said.

“At the same time, most participants remarked that this standard had been achieved with respect to the price stability goal.”

Fed officials were divided on when tapering stimulus would begin.

“Various participants commented that economic and financial conditions would likely warrant a reduction in coming months,” the minutes said. “Several others indicated, however, that a reduction in the pace of asset purchases was more likely to become appropriate early next year.” 

The Dow Jones Industrial Average finished down 382 points, or 1.08%, to 34,960 and the S&P 500 declined 1.07%. The Nasdaq fell 0.89%.

The yield on the benchmark 10-year Treasury edged up Wednesday to 1.272% after the minutes from the Fed meeting were released. 

Stocks had traded mostly lower Wednesday. Investors moved cautiously as they awaited clues on the Fed's plans for its $120 billion a month of asset purchases and as the COVID delta variant's spread raised concern about its potential impact on the economy's recovery.

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Federal Reserve Chairman Jerome Powell, in a virtual town hall on Tuesday, said the coronavirus pandemic was “still casting a shadow on economic activity.” He added, however, that it wasn't yet clear whether the delta strain will have a major impact on the U.S. economy.

Some Fed officials recently have been saying it will soon be time for the central bank to begin tapering stimulus, which was launched to support the economy during the pandemic. Others have emphasized more evidence of a recovery is needed before such action is taken.

Powell told reporters at the Fed's meeting last month that the economy had yet to make “substantial further progress” toward meeting the central bank's criteria for policy normalization.

“There’s a range of views on what timing will be appropriate. And those views ultimately track back to people’s views about the economy and what will happen as we make progress towards our goal,” Powell said.

Housing starts in July tumbled despite softer lumber prices improving employment prospects. They fell 7% from the previous month to an annualized rate of 1.534 million units, a three-month low. The numbers were well below economists' estimates of 1.6 million and June's pace of 1.65 million.

Lowe's  (LOW) – Get Report ended nearly 10% higher Wednesday after reporting second-quarter adjusted earnings that beat estimates and raising its full-year revenue outlook.

U.S. same-store sales at Lowe's fell 2.2% during the quarter but were stronger than analysts' estimates, which called for a decline of 2.6%. Lowe's' rival, Home Depot , on Tuesday posted a same-store-sales increase that was below analysts' f! orecasts.!

Target  (TGT) – Get Report shares on Wednesday finished down 2.8%, even after the retailer posted better-than-expected second-quarter earnings and boosted its full-year profit forecast amid solid back-to-school demand and a return to in-store shopping.

Earnings reports are expected from Nvidia  (NVDA) – Get Report, Cisco Systems  (CSCO) – Get Report and Robinhood Markets  (HOOD) – Get Report after the closing bell Wednesday.

Nvidia and Cisco are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells the stocks? Learn more now.

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