The major domestic equity indexes ended the trading day in negative territory on Wednesday as the S&P 500 snapped a three-day streak of record high closes. Comments from Fed Chairman Jerome Powell appeared to dampen hopes the central bank could move later this year to cut interest rates.

In its policy announcement, the Fed held rates steady as expected and struck a cautious tone on inflation. However, speaking following the Fed statement, Powell said a decline in inflation this year could be due to transitory factors. That seemed to throw cold water on views by some in the market that the Fed might make a preemptive bid to head off lower inflation or a recession by cutting rates.

As Powell spoke, traders of short-term interest rate futures began trimming bets the Fed will cut rates before the end of the year.

Stocks had been higher for much of the session and the S&P 500 hit an intraday record early, driven by a rise in shares of Apple. Apple late on Tuesday reported quarterly results that exceeded consensus estimates despite a record drop in iPhone revenue. The company also announced plans for a new $75 billion share buyback and raised its cash dividend by 5 percent. Apple’s stock ended up 4.9 percent.

Selling was broad-based as nearly every S&P 500 sector ended the day lower.

Approximately 7.44 billion shares changed hands on the major domestic equity exchanges, as compared to the 6.61 billion share average over the past 20 trading days.

The Fed Shall Neither Give nor Take Away

The Fed on Wednesday held interest rates steady and signaled little appetite to adjust them any time soon, taking heart in continued job gains and economic growth and the likelihood that weak inflation will edge higher.

 “We think our policy stance is appropriate at the moment; we don’t see a strong case for moving it in either direction,” Fed Chairman Jerome Powell said in a press conference following the end of the central bank’s latest two-day policy meeting.

Overall, he said, “I see us on a good path for this year.”

Fed policymakers said ongoing economic growth, a strong labor market and an eventual rise in inflation were still “the most likely outcomes” as our domestic expansion nears its 10-year mark.

The Fed did trim the amount of interest it pays banks on excess reserves to 2.35 percent from 2.40 percent in an effort to ensure its key overnight lending rate, the federal funds rate, remains within the current target band.

The chief concern flagged in the policy statement was the currently “muted” level of inflation, which continues to fall short of the Fed’s 2 percent target. The statement suggested that a recent decline in inflation may be more persistent than expected and was no longer to be blamed simply on falling energy prices.

The most recent data indicated a measure of underlying inflation running at 1.6 percent, which would be a problem if it meant that households and businesses had doubts about the economy’s strength and were less willing to spend and invest.

Powell told reporters the decline in so-called core inflation was likely mostly due to transient factors, and he predicted it would rise back to the 2 percent target.

“If we did see inflation running persistently below (the target), that is something that we would be concerned about and something that we would take into account in setting policy,” he said.

But for now, Powell said, low inflation allows the central bank to be “patient” in deciding on any further changes to its overnight benchmark lending rate, which it left in a range of 2.25 percent to 2.50 percent.

Powell’s insistence the weakness in inflation was likely transient and his repeated assertion that incoming data could take the Fed in either direction on rates helped quash a rally in stocks and Treasury securities after the policy statement.

By the end of his press conference, the S&P 500 index was about 0.3 percent lower on the day and Treasury yields, which move in the opposite direction of their prices, had risen to the day’s high. Interest rate futures also reversed direction, signaling a lower degree of confidence the next Fed move would be a rate cut.

The federal funds rate is the amount banks charge each other for overnight loans, and is the rate the Fed targets as its main way of controlling other borrowing costs in the economy. It neared the upper end of the target range last week, prompting the change in the interest paid on excess reserves.

Wednesday’s policy decision was unanimous, a sign that the Fed remains steady in its pledge to keep interest rates unchanged until incoming economic data provide a compelling reason to do otherwise.

Day’s Economic Data

Manufacturing activity slowed more than expected in April amid a sharp drop in orders and construction spending fell in March, suggesting a moderation in economic growth.

While other data on Wednesday showed private employers hired the most workers in nine months in April, the surge in job growth was likely driven by technical factors. The mixed reports came as Federal Reserve officials were wrapping up a two-day meeting. The Fed is expected to reaffirm its decision to halt further interest rate increases this year. 

The Institute for Supply Management said its index of national factory activity fell to a reading of 52.8 in April from 55.3 in March. A reading above 50 indicates growth in the manufacturing sector, which accounts for about 12 percent of the U.S. economy.

The ISM’s new orders sub-index dropped 5.7 points to a reading of 51.7 last month. A measure of export orders also fell and factories reported a decline in hiring, with a measure of manufacturing employment falling to 52.4 from 57.5 in March.

That suggests manufacturing payrolls remained weak in April after they dropped in March for the first time since July 2017.

Separately on Wednesday, the ADP National Employment Report showed private payrolls increased by 275,000 jobs in April, the biggest rise since July 2018 and exceeding economists’ expectations for a gain of 180,000 jobs. That followed 151,000 positions created in March.

The ADP figures came ahead of the Labor Department’s more comprehensive employment report on Friday, which includes both public-and private-sector employment.

The ADP report, which is jointly developed with Moody’s Analytics, has a poor record predicting the private payrolls component of the government’s employment report. Moody’s Analytics said the private job count in April was likely overstated by technical factors.

Total nonfarm employment is expected to have increased by 185,000 jobs after rising by 196,000 in March. Job growth has slowed from last year’s 223,000 monthly average rate as workers become more scarce. The pace of job gains, however, remains above the roughly 100,000 per month needed to keep up with growth in the working age population.

The unemployment rate is forecast unchanged at 3.8 percent in April. The dollar was trading lower against a basket of currencies, while Treasury prices rose.

In a third report, the Commerce Department said construction spending decreased 0.9 percent. Data for February was revised to show construction outlays rising 0.7 instead of increasing 1.0 percent as previously reported.

Construction spending data for January was also revised lower to account for additional projects identified as eligible for inclusion in the series.

Construction spending fell 0.8 percent on a year-on-year basis in March.

March’s weak construction spending as well as downward revisions to January and February outlays suggest the government’s initial estimate of first-quarter gross domestic product published last week could be revised lower.

Increased state and local government spending on roads and highways helped to lift GDP growth to a 3.2 percent annualized rate in the first quarter, according to the advance estimate. 

In March, investment in public construction projects fell 1.3 percent after rising 3.2 percent in the prior month. Spending on state and local government construction projects dropped 1.1 percent after advancing 3.4 percent in February.

Outlays on federal government construction projects tumbled 2.7 percent after increasing 1.4 percent in February.

Spending on private construction projects dropped 0.7 percent in March to the lowest level since August 2017, after slipping 0.2 percent in the prior month. Private construction outlays have now declined for three straight months.

Investment in private residential projects plunged 1.8 percent to the lowest level since December 2016, after falling 0.4 percent in February. The housing market has struggled, with spending on homebuilding contracting for five straight quarters.

Spending on private nonresidential structures, which includes manufacturing and power plants, rose 0.5 percent in March after climbing 0.1 percent in February.