The S&P 500 and the Dow Jones Industrial Average closed out the trading day in negative territory on Wednesday as interest rate-sensitive financial stocks dragged down the indexes after the Fed affirmed a dovish monetary policy stance.

While all three major equity indexes briefly reversed earlier losses following the Fed statement, only the Nasdaq ended the session in positive territory.

At the conclusion of its two-day monetary policy meeting, the Fed indicated it sees no further rate hikes this year and released details of a plan to end the monthly reduction of its balance sheet.

However, while the indexes briefly turned positive after the statement’s release, banks, which are sensitive to interest rates and put a damper on the rally. The financial sector sold off sharply in the last hour of trading, ending the session down 2.1 percent.

The stock market has rallied since the beginning of the year, when Fed chair John Powell said the Fed would take a “patient” approach to monetary policy.

Powell affirmed that sentiment at a press conference following the release, citing mixed economic data and risks associated with Brexit and trade negotiations as reasons for caution.

Indeed, Federal funds futures now see nearly even chances that the central bank will cut interest rates in early 2020. Of the 11 major sectors in the S&P 500, six ended the session in negative territory.

Shares of FedEx fell 3.5 percent after the global package delivery company cut its 2019 profit forecast, citing slowing global trade growth.

FedEx weighed on the Dow Jones Transport Index, a closely-watched gauge of economic health, pulling the index down 1.3 percent. United Parcel Service Inc was also down, falling 2.2 percent.

General Mills rose 2.2 percent after the company reported better-than-expected quarterly earnings and raised its full-year forecast.

Approximately 7.76 billion shares changed hands on the major domestic equity exchanges on Wednesday, as compared to the 7.53 billion share daily average over the past 20 trading days.

Fed – No Rate Hikes in 2019

The Federal Reserve on Wednesday brought its three-year drive to tighten monetary policy to an abrupt end, abandoning projections for any interest rate hikes this year amid signs of an economic slowdown, and saying it would halt the steady decline of its balance sheet in September.

The measures, announced following the end of a two-day policy meeting, mean the Fed’s gradual and sometimes fitful efforts to return monetary policy to a more normal footing will stop well short of what was foreseen in late 2015 when the central bank first moved rates from the near-zero level adopted in response to the 2007-2009 financial crisis and recession.

Having downgraded their growth, unemployment and inflation forecasts, policymakers said the Fed’s benchmark overnight interest rate, or fed funds rate, was likely to remain at the current level of between 2.25 percent and 2.50 percent at least through this year, a wholesale shift of their outlook.

In contrast to projections through much of last year, Fed policymakers no longer see the need to move rates to a “restrictive” level as a guard against inflation, which remains lodged below the central bank’s 2 percent target.

They also said that as of May they would slow their monthly reduction of as much as $50 billion in asset holdings, and halt them altogether in September, ending what amounted to a second lever of monetary tightening that had run in the background since late 2017.

In terms of interest rates, the new Fed projections knocked the number of hikes expected this year to zero from the two that were forecasted back in December, completing a pivot to a less aggressive policy in the face of an apparent jump in economic risks. 

At least nine of the Fed’s 17 policymakers reduced their outlook for the fed funds rate, a comparatively large number.

“It may be some time before the outlook for jobs and inflation calls clearly for a change in policy,” Fed Chairman Jerome Powell said in a press conference following the policy meeting, at which policymakers reaffirmed they will be “patient” before moving rates again.

“Patient means that we see no need to rush to judgment,” Powell said.

Continued growth and a healthy jobs market remains “the most likely” scenario for the U.S. economy, the Fed’s rate-setting committee said in a policy statement on Wednesday.

But doubts have accumulated, with a slowdown in household spending and business investment at the start of this year possibly signaling an early end to a growth spurt triggered in 2018 by a massive tax cut package and government spending.

The economic projections released on Wednesday showed policymakers at the median see the economy growing only 2.1 percent in 2019, a full percentage point below the roughly 3 percent growth that was seen in 2018 and which the Trump administration contends will continue.

The new rate view brings the Fed in line with investors who have argued the central bank would not raise rates this year.

Fed funds futures contracts began pricing in a better-than-even chance of a rate cut by next year after the release of the policy statement and projections. Powell pushed back on that view, saying the U.S. economy is in a “good place” and that the outlook is “positive.”

Still, he said, there are ongoing risks, including those related to Britain’s exit from the European Union, trade talks with China, and even the outlook for the economy, which he said the Fed is watching closely.

“The data are not currently sending a signal that we need to move in one direction or another, in my view,” he said. “It’s a great time for us to be patient.”

The new economic projections showed weakening on all fronts compared to the Fed’s forecasts from December. In addition to the growth slowdown, the unemployment rate for 2019 is forecast at 3.7 percent, slightly higher than forecast three months ago.

Inflation for the year is now seen at 1.8 percent, compared to the December forecast of 1.9 percent.

“Growth of economic activity has slowed from its solid rate in the fourth quarter,” the Fed said. “Recent indicators point to slower growth of household spending and business fixed investment in the first quarter … overall inflation has declined.”