Stocks slip as investors digest Fed outlook for the economy

People walk on Broadway at Wall Street, Wednesday, June 16, 2021. Stocks shook off a wobbly start and pushed mostly higher in the first few minutes of trading on Wall Street. The S&P 500 rose 0.1% in the early going Thursday, June 17 and other major indexes were also posting modest gains. (AP Photo/Richard Drew)

Stocks edged lower Thursday as investors continued to interpret new guidance from the Federal Reserve, which is now looking at potentially raising interest rates as soon as 2023.

The S&P 500 index fell 0.1% as of 12:58 p.m. Eastern. The Dow Jones Industrial Average was down 273 points, or 0.8%, to 33,760 and the Nasdaq Composite was up 0.5%.

Banks were the biggest drag on the broader market as bond yields fell significantly. Bank of America fell 4%. The yield on the 10-year Treasury fell to 1.49% from 1.57% late Wednesday. Banks rely on higher yields to charge more lucrative interest on loans.

Crude oil prices slipped 2.7% and weighed on energy companies. Exxon Mobil fell 3.3%.

Gains from big technology companies like Microsoft and Apple helped temper some of the losses in the rest of the market.

Fed policymakers on Wednesday estimated that they would raise interest rates twice by late 2023, earlier than a previous forecast of no hikes before 2024. That's because the Fed indicated it sees the U.S. economy improving faster than previously expected, through trillions of dollars of government aid and ultra-low interest rates.

Much of the choppiness in the market has been tied to investors trying to figure out just when the Fed is going to ease up on its support for the economy through bond purchases and low interest rates.

While the economy still needs support, the recovery is proving to be strong enough that it does not need the same emergency measures taken at the beginning of the pandemic, said Stephanie Link, chief investment strategist and portfolio manager at Hightower.

“We are going to get a taper," she said. “They need to, we do not need emergency stimulus at this point.”

The recovering economy has put upward pressure on prices, pushing costs for many raw materials and basic goods higher this year, though prices for lumber and other basic materials have started to ease up.

The jump in costs has been fueling concerns about inflation. Much of the concern is whether rising inflation will be temporary, as the Fed expects, or more long-lasting. The reality could be more mixed. The rise in commodity prices is likely tied to increases in demand as the economy recovers, but rising wages will likely be longer lasting as employers increase pay in order to attract workers, Link said.

The U.S. dollar rose against several currencies, including the euro and British pound, following the news from the Fed. Gold prices slumped 4.8% and dragged down gold producers. Newmont fell 6.9%.

Investors got a bit of mildly disappointing economic news when the Labor Department said the number of Americans who filed for unemployment benefits last week rose slightly, despite widespread evidence the economy is improving nationwide. The 37,000-claim rise to 412,000 comes despite near constant weekly declines for that metric since the beginning of the year.

Homebuilder Lennar rose 2.6% after reporting second-quarter profit and revenue that beat Wall Street forecasts.