LIVE MARKETS-US stocks drop as Fed foresees higher inflation

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US STOCKS DROP AS FED FORESEES HIGHER INFLATION

Stocks slid on Wednesday after the Federal Reserve projected higher inflation but maintained expectations for only a single reduction in borrowing costs this year, after data earlier showed that producer prices also rose more than expected in February.

Fed Chair Jerome Powell said the central bank's response to Iran-war-driven oil price increases will hinge on whether underlying inflation continues to cool.

“The central bank is now grappling with a balance of risks that is tilted more toward concerns for accelerating inflation,” Jason Pride, chief of investment strategy and research at Glenmede, said in a note.

Powell also said he will stay on as the central bank leader if his successor is not confirmed by May, when his current chair term ends. Peter Tchir, head of macro strategy at Academy Securities, said in a note, "I think this sets us up for a more contentious Fed than I was expecting."

Fed funds futures traders cut bets for one 25-basis-point cut this year, with 15.4 basis points now priced in through December, down from about 20.7 basis points in the moments before the Fed statement was released. That had been over 50 basis points before the outbreak of the U.S.-Israeli war on Iran.

Rising oil prices added to the risk-off tone. NYMEX crude futures CLc1 were up more than 2% on Wednesday after Iran's Revolutionary Guards threatened to attack several energy facilities across the Middle East, raising the risk of further disruptions to the region's energy supplies.

The three main indexes ended sharply lower with the Dow Jones Industrial Average .DJI, the worst performer, down just over 1.6%. The Nasdaq Composite .IXIC dropped about 1.5%, and the S&P 500 .SPX fell about 1.4%.

All S&P 500 sectors ended in the red. Consumer Staples .SPLRCS, down just over 2.4%, was the weakest group.

Here is a snapshot of where markets stood shortly after 4 p.m. EDT.

(Karen Brettell, Terence Gabriel)

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