Dow closes down 352 points after Fed hikes rates, and signals 2 -- not 3 -- increases next year

The Federal Reserve did not ride to the battered stock market's rescue as investors had hoped.

The December market selloff on Wall Street deepened Wednesday, with the Dow falling 352 points and sinking to its lowest point of the year after the Federal Reserve hiked interest rates for the fourth time in 2018. The latest hike in borrowing costs boosted fears that the central bank's rate increases will harm the economy.

Even though the Fed signaled that it was planning one fewer rate increase next year than they signaled back in September, the negative reaction on Wall Street suggests investors were looking for more support from the Fed. Investors would have preferred the Fed had left rates unchanged and hinted that they were done hiking rates for awhile.

"The market was hoping the Fed would signal it was about to pause or that it was considering at most one rate hike next year," says Nick Sargen, senior investment advisor for Fort Washington Investment Advisors. "Instead, the (Fed's latest outlook) indicates the majority of the Fed policy makers think there could be two hikes. The bottom line is market participants are more concerned about the economic outlook than the Fed is."

The Fed boosted its key rate to a range of 2.25 percent to 2.50 percent, but also lowered the path of rate cuts in 2019 to two hikes, down from the three it signaled at its September meeting.

But the slower pace of hikes wasn't enough to assuage jittery investors.

Following the central bank's statement and Fed Chairman Jerome Powell's press conference explaining their thinking, the Dow Jones industrial average closed down 352 points, or 1.5 percent, to 23,324, in volatile trading. The Dow swung nearly 900 points from its high to low. The S&P 500 closed down 1.5 percent and the Nasdaq composite fell 2.2 percent.

The stock market has suffered a steep decline so far this month, with the broad Standard & Poor's 500 stock index sinking 9.2 percent, its worst start to December since the Great Depression in 1931, according to Bespoke Investment Group.

A big reason for the slide is a growing fear on Wall Street that the Fed will make a policy mistake and hike interest rates too high and cause the economy to slow markedly.

"We're seeing a fair amount of pitfalls," says Mike Loewengart, vice president of investment strategy at E-Trade.

Adds Paul Ashworth, chief U.S. economist at Capital Economics, a UK-based firm: "This is hardly the 'dovish hike' that some were anticipating."

The possibility of paring back hikes next year does give the Fed more wiggle room going forward, some analysts say.

"The Fed statement was more pragmatic and flexible suggesting that they will be increasingly data dependent," Quincy Krosby, chief market strategist at Prudential Financial told USA TODAY.

The mood on Wall Street has turned darker in recent weeks due to signs of slowing growth around the globe, the fallout from the U.S.-China trade dispute and a decline of more than 35 percent in the price of U.S.-produced crude. All these factors are "screaming slowdown," says Gary Kaltbaum, president of Kaltbaum Capital Management.

Some Wall Street pros say the Fed is no longer looking at a set schedule of rate increases next year and will base their decisions more on incoming data.

"This means that we will not see a pattern of a quarter point hike every three months as we have in the past year," says Hank Smith, co-chief investment officer at Haverford Trust told USA TODAY via email.

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Investors will be closely watching the Fed's next move on rates.

"Markets will continue to look closely for hints on how high the Fed may push rates next year," says LPL Research chief investment strategist John Lynch. "We still have faith in the Fed's pragmatic evaluation of risks."

This article originally appeared on USA TODAY: Dow closes down 352 points after Fed hikes rates, and signals 2 -- not 3 -- increases next year