NEW YORK: Wall Street stocks tumbled on Tuesday (March 7) after Federal Reserve (Fed) chair Jerome Powell said the US central bank could increase rates more than expected to quash inflation.
The Dow Jones Industrial Average fell 574.98 points, or 1.72%, to 32,856.46; the S&P 500 lost 62.05 points, or 1.53%, at 3,986.37; and the Nasdaq Composite dropped 145.40 points, or 1.25%, to 11,530.33.
Investors now see a greater chance of a half-point interest rate increase at the Fed’s next meeting following Powell’s appearance, during which he told a Senate panel the Fed is prepared to accelerate the pace of interest rate increases if strong economic data persists.
“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” he said.
The US central bank has already raised its benchmark lending rate eight times since early last year, as it contends with inflation that remains stubbornly above its long-term target of 2 percent.
Quincy Krosby of LPL Financial said Powell is preparing the market for a more aggressive response depending on key jobs and pricing data in the coming days.
Powell “has a mandate to maintain price stability, and that is what he is focused on”, Krosby said. “Everything he has said points to the fact that he is going to do what he has to do.”
Traders dramatically raised their bets for a 50-basis-point rate hike in March after Powell's comments, with money market futures last pricing in a more than 70% chance of such a move, up from around 31% on Monday, according to CME Group's FedWatch tool.
While many investors had worried that the Fed would consider higher rates for longer than previously expected, “hearing it directly from Powell is a little different to inferring it from the data,“ said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.
“From a risk-rewards standpoint investors have to recalculate their desire to be invested with this new paradigm,“ said Adam Sarhan, chief executive of 50 Park Investments, based in Orlando, Florida. “It’s the realisation the Fed is going to err on the side of being more hawkish.”
But John Lynch, chief investment officer for Comerica Wealth Management, argued that with employment and consumption showing strength so far, investors should have been expecting Powell's more hawkish tone. – AFP, Reuters