Sun, Aug 28, 2022 page1

• Dow drops 1,000 after Fed says rates will stay high

  ’THERE WILL BE PAIN’: Rate hikes could hurt Americans, but inflation would hurt worse and ‘we must keep at it,’ the Fed chair said, prompting a Wall Street sell-off

  • AP, NEW YORK
  • • 
    • 
    • 

  The Dow Jones Industrial Average sank more than 1,000 points on Friday after the head of the US Federal Reserve dashed Wall Street’s hopes that it might soon ease up on high interest rates in its effort to tame inflation.

  The S&P 500 lost 3.4 percent, its biggest drop since June, after US Federal Reserve Chair Jerome Powell said the Fed would likely need to keep interest rates high enough to slow the economy “for some time” to beat back high inflation.

  The Dow dropped 3 percent and the NASDAQ composite ended 3.9 percent lower, reflecting a broad sell-off led by technology stocks.

  

  Traders work on the floor of the New York Stock Exchange on August 26. in New York City. The Dow Jones Industrial Average dropped more than 1000 points following a speech by federal Reserve Chairman Jerome Powell that the Fed will again raise interest rates as inflation continues to drag on the American economy.

  Photo: AFP

  Higher rates help corral inflation, but they also hurt asset prices.

  The Fed has indicated it would raise rates into next year as it tries to quell demand and bring down prices for goods and services.

  However, some investors said that the central bank might pause or reverse course next year if inflation subsides, which led to a stock rally over the past two months.

  Some analysts expected Powell to bat down that talk in Friday’s speech, and he delivered. His speech followed on remarks by several other Fed officials, who also pushed back on speculation that the Fed might act less aggressively or even “pivot.”

  “He basically said there will be pain and that they won’t stop, and can’t stop, hiking until inflation moves a lot lower,” Allspring Global Investments senior investment strategist Brian Jacobsen said.

  Powell said that increases would hurt US households and businesses, perhaps indicating a recession, but he also said the pain would be far greater if inflation were allowed to continue and that “we must keep at it until the job is done.”

  He was speaking at an annual economic symposium in Jackson Hole, Wyoming, which has been the setting for market-moving Fed speeches in the past.

  The sell-off capped a week of choppy trading that left major indices down 4 percent or more for the week.

  The S&P 500 fell 141.46 points to 4,057.66. The benchmark index is down about 15 percent for the year.

  The Dow lost 1,008.38 points to close at 32,283.40. The last time the blue-chip average had a 1,000-point drop was in May.

  The NASDAQ slid 497.56 points to 12,141.71.

  The Russell 2000 index of smaller companies fell 64.81 points, or 3.3 percent, to finish at 1,899.83.

  Stocks are still showing solid gains for the third quarter of this year, with the S&P 500 up more than 7 percent and the NASDAQ up 10 percent. Recent earnings reports were better than some analysts had expected, and there are signs that inflation might have peaked, although it remains at sharply elevated levels.

  Powell’s speech made clear that the Fed would accept weaker growth for the sake of getting inflation under control, analysts said.

  “Powell reiterated that the Fed is worried about rising prices, and getting inflation under control is emphatically job No. 1,” Thornburg Investment Management co-head Jeff Klingelhofer said.

  Perhaps giving some hope to investors, some analysts said Powell seemed to indicate expectations for inflation are not occurring.

  A report on Friday said US consumers expect 2.9 percent annual inflation in the long term, at the lower end of the 2.9 percent to 3.1 percent range seen in a University of Michigan survey over the past year.

  For now, the debate on Wall Street is whether the Fed might raise short-term rates by either half a percentage point next month, double the usual margin, or by three-quarters of a point.

  The Fed’s last two hikes have been by 0.75 points, and a slight majority of bets on Wall Street are favoring a third such increase next month, CME Group said.

  A report on Friday morning showed that the Fed’s preferred gauge of inflation decelerated last month and was not as bad as many economists expected. It is a potentially encouraging signal, which could embolden more of Wall Street to say that the worst of inflation has already passed or might soon.

  Other data showed that US incomes rose less last month than expected, while consumer spending growth slowed.

  Following the reports and Powell’s comments, the two-year Treasury yield rose for much of the day, but slipped by late afternoon to 3.36 percent from 3.37 percent on Thursday. It tends to track expectations for Fed action.

  The 10-year Treasury yield, which follows expectations for longer-term economic growth and inflation, initially rose then slipped to 3.02 percent from 3.03 percent late on Thursday.

  The Fed hiked its key overnight interest rate four times this year in hopes of slowing the worst inflation in decades. The hikes have already hurt the housing industry, where more expensive mortgage rates have slowed activity, but the job market has remained strong, helping to prop up the economy.

  Investors received a fresh set of warnings from companies about the persistent impact from inflation and a slowing economy. Computer maker Dell slumped 13.5 percent after it said weaker demand is likely to hurt revenue. Chipmaker Marvell Technology fell 8.9 percent after giving investors a disappointing earnings forecast.
• Most Popular

  • 1

    Eurovision Song Contest triggers surge in betting interest

  • 2

    Barcelona crowned champions

  • 3

    Napoli close in on title despite Parma stalemate

  • 4

    Sinner cruises past Ruud, Gauff battles into final

  • 5

    Entertainers questioned amid military service furor