Wall Street fell sharply on Friday, with the Dow plummeting more than 600 points after Federal Reserve Chief Jerome Powell’s comments suggested the central bank will keep raising interest rates to tame inflation.
The US economy will need tight monetary policy “for some time” before inflation is under control, a fact that means slower growth, a weaker job market and “some pain” for households and businesses, said Powell in prepared remarks for a speech to the Jackson Hole central banking conference in Wyoming.
People should not expect the Fed to dial back quickly until the inflation problem is fixed, the central bank chair added.
“The Fed wants to talk tough because they don’t want inflation to become ingrained in the economy,” said Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Co.
“He focused on not loosening policy too early but he didn’t mention going any further on a hawkish side.”
The Dow Jones Industrial Average nosedived immediately after Powell’s comments, falling 611 points as of midday trading. The S&P 500 slid 76 points, or 1.61%, at 4,122, and the Nasdaq Composite fell nearly 300 points points, or 2.5%, at 12,340.
Weighing on megacap growth and technology stocks, the U.S. two-year Treasury yields briefly popped to their highest levels since October 2007 before stabilizing near two-month highs.
High-growth and technology stocks such as Nvidia and Amazon declined 4.7% and 2.4% after posting sharp gains in the previous session.
Economy-sensitive banks fell 1.5%.
However, it has recovered strongly since June, with the S&P 500 regaining nearly half its losses for the year on the back of stronger-than-expected quarterly earnings and hopes that inflation has peaked.
Traders were still divided between a 75 basis point and a 50 basis point hike by the Fed, while economists see the central bank lifting rates by 50 bps at its meeting next month.
Data earlier showed US consumer spending barely rose in July, but inflation eased considerably, which could give the Fed room to scale back its aggressive interest rate increases.
Dell Technologies fell 8.8% as it joined rivals in predicting a slowdown as runaway inflation and the darkening economic outlook prompt consumers and businesses to tighten their purse strings.
US-listed shares of Chinese companies like Alibaba and JD.com rose about 0.3% each after the US audit regulator said it has signed an agreement with Chinese regulators.