Business Corpus: As Fed Meets, Rising Rates And Dollar Hit Dow Jones Average, S&P 500As Fed policymakers began a two-day meeting on Tuesday, the 2-year Treasury yield touched its highest level since 2008 and the dollar rose to its highest point all year. The post As Fed Meets, Rising Rates And Dollar Hit Dow Jones Average, S&P 500 appeared first on Investor's Business Daily.

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As Fed policymakers began a two-day meeting on Tuesday, the two-year Treasury yield touched its highest level since 2008 and the dollar rose to its highest point all year.

With fears of a trade war receding, the dollar has surged over the past month. The greenback also has gotten a boost as inflation picks up and expectations grow that the Fed will hike rates four times this year. Meanwhile, central banks in Europe and Japan are in no rush to tighten, so further dollar gains are a fair bet.

Those three trends — higher interest rates, inflation and the dollar — could squeeze earnings in the second quarter and beyond. Those concerns contributed to a bad day for the Dow Jones industrial average and S&P 500 index. In midafternoon trading, the Dow was off 1.4% and the S&P 500 was down 0.8% on the stock market today.

Earnings in foreign currencies are worth less in dollar terms when the dollar strengthens. That's a negative for U.S. multinationals like Caterpillar (CAT), Boeing (BA) and Merck (MRK) as the dollar turns from tailwind to headwind.

Caterpillar lost 2.8%, Boeing 2.6% and Merck 3.3%.

Higher interest rates also raise borrowing costs for consumers and businesses and can crimp the affordability of major purchases like autos and housing. Ford Motor (F) reported a 5% drop in auto sales in March, though Fiat Chrysler (FCAU) saw surging Jeep sales.

Ford fell 1% and Fiat Chrysler dropped 1.2%.

Further, two-year Treasury yields have climbed more than 10-year yields, and the flatter yield curve pinches net interest margins for the likes of JPMorgan Chase (JPM) and Bank of America (BAC).

JPMorgan slipped 0.9% and BofA shed 0.8%.

Meanwhile, more companies are beginning to note pressure on profit margins from rising input costs, higher fuel and transportation costs, and rising wages.

No fireworks are expected from Wednesday's policy statement at 2 p.m. ET. The Fed is virtually certain to maintain its key interest rate. The next quarterly press conference from Fed Chair Jerome Powell and update of economic projections won't happen until June.

The two-year yield rose as high as 2.52% on Tuesday, the highest since the month before Lehman Bros. went bust, before pulling back to 2.50%. Meanwhile, the 10-year yield that helps determine mortgage rates ticked up to 2.96%. That sub-50-basis-point spread suggests markets are beginning to worry that the Fed will go overboard in hiking rates in the face of temporary tax-cut and spending stimulus.

The U.S. dollar index, which tracks the greenback against a basket of advanced economy currencies, rose as high as 92.57 on Tuesday, up more than 0.5%. The U.S. dollar index has spent much of the year below 90.

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