Bank stocks fell on Wednesday following the widely anticipated interest rate increase by the Federal Open Market Committee.
The Fed raised the federal funds rate by a quarter of a percentage point, to 5%, for the 16th time in almost two years.
The committee said in a statement that "some further policy firming may yet be needed to address inflation risks." But it emphasized that "the extent and timing of any such firming will depend importantly on the evolution of the economic outlook."
Investors and analysts have been speculating for some time that the Fed would stop raising rates once the federal funds rate hit 5%.
Ed Keon, the chief investment strategist at Prudential Equity Group LLC, wrote in a note Wednesday that he believes the central bank will pause now.
"The Fed, however, is still data-dependent," Mr. Keon wrote. "Depending on what happens to the core inflation numbers and the employment and housing market the rest of the year, they could resume the hikes or they could cut back if the labor or housing market were to greatly weaken."
Stephen Gallagher of Societe Generale wrote in a note that "for a Fed chairman that advocates transparency of communication," there were "no explicit signals given as to when or at what level the Fed will stop."
Though Mr. Gallagher said he agrees that the Fed will stop at 5%, "the bottom line -- if we assume the Fed wants to communicate as clearly as possible -- they just don't know what signal on rates to send," he wrote. "Therefore, data dependency, an increasingly repeated refrain, should be the primary signal going forward."
The Dow Jones industrial average inched 0.02% higher, to 11,642.65. The S&P 500 fell 0.17%, to 1,322.85.
The American Banker index of the top 225 bank stocks fell 0.43% and its thrift index fell 0.19%.
Irwin Financial Corp. of Columbus, Ind., was among the largest gainers, rising 3.9% despite missing estimates. The small-business and consumer mortgage lender reported that first-quarter earnings from continuing operations rose 18%, to $8.5 million. Earnings per share of 29 cents missed the average analyst estimate by 10 cents.
Irwin had announced last quarter that it was getting out of the mortgage business and pursuing a sale of its mortgage banking operations. The company took a loss for those discontinued operations recording an after-tax loss of $10.3 million for the period, after a $9.8 million loss a year earlier, due to mortgage servicing hedge losses, it said.
The company said Wednesday in a press release it had not reached a sale agreement.
Countrywide Financial Corp. rose 1.8%. The Calabasas, Calif., company said mortgage loan funding rose 5%, to $36 billion, in April compared with April 2005. Year-to-date fundings were $139 billion, up 11%, it said.
Southwest Bancorp Inc., the parent of Stillwater National Bank and Trust Co. in Stillwater, Okla., fell 3.3%. W. Holding Co. of Mayaguez, Puerto Rico, fell 2.8%, and Cardinal Financial Corp. of McLean, Va., fell 2.4%.
