Dow drops 300 points as Fed two-day policy meeting begins, rates surge

Stocks slid on Tuesday as the Federal Reserve kicked off its two-day policy meeting and Wall Street looked ahead to another large rate hike due out Wednesday.

The Dow Jones Industrial Average fell 352 points, or 1.14%. The S&P 500 shed 1.19% and the Nasdaq Composite slid 1.1%.

The Federal Open Markets Committee begins its September meeting on Tuesday, where central bankers are expected to announce a 0.75 percentage point rate hike on Wednesday. Stocks have tumbled in recent weeks as comments from Fed Chair Jerome Powell and an unexpectedly hot August consumer price index report caused traders to prepare for even higher rates until inflation cools.

Rates marched higher on Tuesday with the yield on the 2-year Treasury note notching a fresh high dating back to late 2007. The yield on the 10-year Treasury traded at 3.593% — near levels not seen since 2011.

Meanwhile, Ford shares slumped 9% after it announced that supply chain issues would cost the automaker an extra $1 billion in the third quarter.

“Heightened fear of recession risk has helped to keep US policy rate pricing inverted from early 2023 to early 2026 and may help to explain why equity volatility is higher than the macro landscape would generally predict,” wrote Goldman Sachs’ Dominic Wilson in a note to clients Tuesday. “Even so, markets will need to adjust significantly further if the more hawkish view of the labor market is right.”

Wilson said the S&P 500 needs to trade within the 2,900 to 3,375 range and 5-year yields between 4.5-5.4% if the Fed needs to see higher unemployment to gain confidence that inflation will fall.

Housing market data released Tuesday showed an unexpected jump in starts for August, although building permits saw the biggest decline since April 2020.

During a choppy trading session on Monday, stocks rose in the afternoon to snap a two-day losing streak and claw back some of their recent losses.