NEW YORK (AP) – The Dow Jones Industrial Average fell more than 1,000 points on Friday after the head of the Federal Reserve dashed Wall Street expectations that it could soon ease higher interest rates in its effort to contain inflation. Is.
The S&P 500 fell 3.4%, its biggest drop since mid-June, after Jerome Powell said the Fed would need to keep interest rates high enough to slow the economy “for some time”. In order to beat back the high inflation in the country. ,
The Dow dropped 3% and the Nasdaq Composite lost 3.9%, reflecting a broader selloff led by technology stocks. Higher rates help corral inflation, but they also hurt property prices.
The Fed has indicated it will raise rates next year as it tries to spur demand and lower prices for goods and services. But some investors speculated that if inflation eases, the central bank could stall or even reverse course next year, triggering a rally in stocks in July and early August.
Some analysts expected Powell to finish that speech in Friday’s speech, and he delivered. His speech followed comments from several other Fed officials, who also fueled speculation that the Fed may act less aggressively or even “pivot”.
“They basically said there will be pain and they won’t stop and they can’t stop hiking until inflation gets too low,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.
Powell acknowledged that the increase would hurt American families and businesses, perhaps an unspoken sign of the potential for a recession. But he also said the pain would be far greater if inflation was allowed to subside and that “we must keep it up until the job is done.”
He was speaking at an annual economic symposium in Jackson Hole, Wyoming, which in the past has been the setting for market-driven Fed speeches.
Selling limited trading in the early hours of a week, leaving major indices down 4% or more for the week.
All told, the S&P 500 fell 141.46 points to close at 4,057.66. The benchmark index is now down about 15% for the year.
The Dow lost 1,008.38 points to end at 32,283.40. The last time the blue-chip average fell by 1,000 points was in May.
The Nasdaq fell 497.56 points to 12,141.71, its biggest drop since June.
The Russell 2000 Index of Small Companies fell 64.81 points, or 3.3%, to end at 1,899.83.
The stock is still showing solid gains for the third quarter, with the S&P 500 up more than 7% and the Nasdaq up 10%. Recent earnings reports were better than some analysts expected, and there are signs that inflation may be peaking, although it remains sharply elevated.
Still, Powell’s speech made clear that the Fed will accept weak growth for some time to keep inflation under control, analysts said.
“Powell reiterated that the Fed is concerned about rising prices, and that keeping inflation under control is a vigorous job,” said Jeff Klingelhofer, co-head of investment at Thornberg Investment Management.
Perhaps giving investors some hope, some analysts said Powell indicated that future inflation expectations are not taking off. If this happens, it could lead to a self-perpetuating cycle that worsens inflation.
A report on Friday said US consumers are expecting 2.9% annual inflation over the long term, which is at the low end of the 2.9% to 3.1% range in the University of Michigan survey over the past year.
For now, the debate on Wall Street is whether the Fed will raise short-term rates next month by either half a percentage point, twice the normal margin, or by three-quarters of a point. According to the CME Group, the Fed’s last two hikes have been 0.75 points, and a small majority on Wall Street are in favor of a third such hike in September.
A Friday morning report showed that the Fed’s favorite gauge of inflation turned lower last month and was not as bad as many economists had hoped. It’s a potentially encouraging sign that could encourage more Wall Street people to say that the worst of inflation has already passed or will soon happen.
Other data showed that income for Americans grew less than expected last month, while growth in consumer spending slowed.
Following the report and Powell’s comments, the two-year Treasury yield rose for much of the day, but fell to 3.37% late Thursday from 3.36% by late afternoon. It tracks expectations for Fed action.
The 10-year Treasury yield, which follows longer-term economic growth and inflation expectations, rose initially and fell to 3.02% from 3.03% late Thursday.
The Fed has raised its key overnight interest rate four times this year in hopes of slowing inflation to its worst in decades. The hike has already hurt the housing industry, where more expensive mortgage rates have slowed activity. But the job market remains strong, which has helped propel the economy.
Investors received a new set of warnings from companies about the continued impact from inflation and a slowing economy. Computer maker Dell fell 13.5 per cent as it said weak demand would hurt revenues. Chipmaker Marvell Technology fell 8.9% after giving investors disappointing earnings estimates.
AP Business Writer Joe McDonald contributed. Vega reported from Los Angeles.