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Stocks fall as investors grapple with Fed’s recovery timeline

Wall Street struggled on Thursday, torn between improving economic data and a Federal Reserve that said the path to recovery would be very long.

Stocks finished in the red, off their lows for the day. All three indexes also started the session lower, and only the Dow managed to turn positive, albeit briefly. The index closed down 0.5%, or 130 points, after falling as many as 384 points at its lowest point. It was the index’s first down day in a week.

The S&P 500 closed 0.8% lower, and the tech-heavy Nasdaq Composite finished down 1.3%.

It was the second straight day that investors grappled with the US central bank’s monetary policy update, which points to a long and hard road to recovery.

The Fed committed to lower interest rates for longer and to continue asset purchases to help the US economy recover from the pandemic shock. It reiterated that the speed of the economy depended on the path of the virus.

A survey of Fed officials showed the group expects rates to remain at or near zero through 2023. In theory that’s good for stocks, because it means that companies can borrow at cheaper interest rates. But it also means that the economic recovery will be slower than many may have hoped.

Powell also reiterated that there likely needed to be more fiscal stimulus.

While the labor market has improved significantly since the spring, “It’s a long way from maximum employment,” Fed Chairman Jerome Powell told reporters Wednesday. As of the August jobs report, the country was still down 11.5 million jobs from February.

On Thursday, initial jobless claims decreased to 860,000 on a seasonally adjusted basis, still about four times as high as before the pandemic.

Even though economic data continues to improve, showing that the economy fared much better in the current, third quarter than in the depressed second quarter, the rebound is “expected to fade at a much more rapid rate” than expected, said Steven Ricchiuto, US chief economist at Mizuho Securities, in a note to clients.

Article Topic Follows: Biz/Tech

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