Stocks start May with a swoon

NEW YORKThe stock market fell the most in two weeks as the outlook for the economy grew dimmer.

The Dow Jones industrial average fell 138 points to close at 14,701 Wednesday. The Standard & Poor's 500 dropped 14 to 1,582. The Nasdaq lost 29 points to 3,299.

All three indexes fell 0.9 percent.

Small-company stocks fell more than the rest of the market. The Russell 2000 index sank 2.5 percent.

Stocks sagged following a slowdown in hiring and manufacturing last month. Big-name companies reported disappointing results.

Bond yields fell as investors sought safety. The yield on the 10-year Treasury note fell to 1.63 percent, its lowest of the year.

Three stocks fell for every one that rose on the New York Stock Exchange. Volume was below average at 3.4 billion shares. The Federal Reserve cautioned America's political leaders Wednesday that their policies are hurting the economy.

Markets had been lower all day but the selling deepened after an announcement by the Federal Open Market Committee of the Federal Reserve. The Fed stood by its aggressive efforts to stimulate the economy and reduce unemployment, saying it would either loosen or tighten its policies as the situation warranted. But the Fed also sent its clearest signal to date that tax increases and spending cuts that kicked in this year are slowing the economy.

"Fiscal policy is restraining economic growth," the Fed said in a statement after a two-day policy meeting.

The Fed maintained its plan to keep short-term interest rates at record lows at least until unemployment falls to 6.5 percent. And it said it will continue to buy $85 billion a month in Treasury and mortgage bonds. The bond purchases are intended to keep long-term borrowing costs down and encourage borrowing and spending.

The Fed's statement signaled its concern about a Social Security tax increase, which took effect Jan. 1, and deep government spending cuts, which began taking effect March 1. The across-the-board spending cuts took effect automatically after Congress failed to reach a budget deal.

Joel Naroff, chief economist at Naroff Economic Advisors, said he viewed the Fed's more forceful remarks on the issue as criticism of Congress' fiscal policies.

"The Fed noted that the private economy is pushing ahead, but it is the government that is putting roadblocks in the way," Naroff said. "That was as clear a shot at Congress as I have seen the Fed take."