As traders recognized that the Federal Reserve is determined to maintain high interest rates to combat inflation, stocks began lower on Wall Street, extending their losses from last week’s precipitous decline.
In early trade, technology businesses and banks suffered some of the greatest losses. This week, investors will receive more economic developments, including the government’s monthly jobs report on Friday and the Conference Board’s consumer confidence index on Tuesday. Treasury yields increased.
As of 10:35 EST, the S&P 500 fell 27 points, or 1%, to 4,035. Dow Jones industrials fell 0.8%, while the tech-heavy Nasdaq fell 0.6%.
Friday’s message from Federal Reserve Chairman Jerome Powell was anticipated, though some had hoped it would be less strong. Powell admitted that the rate hikes will harm U.S. individuals and businesses, maybe in a subtle acknowledgment to the possibility of a recession. However, he also stated that the suffering would be much worse if inflation were allowed to run rampant and that “we must persist until the job is done.”
“Apparently, the market desired something a bit more neutral. After all the ‘pause’ and ‘pivot’ language, none of which ever made sense with a Fed that has repeatedly stated it will continue increasing rates even if it involves economic pain, we are back to square one with a Fed view to continue tightening “said ACY Securities’ chief economist, Clifford Bennett.
The Fed was always going to continue rapidly raising interest rates, but the market decided to price in a slowdown or even a reversal.
After Fed Chair Powell’s Jackson Hole speech at 5:24, the stock market falls.
In addition to impacting on regional sentiment, Chinese economic data released over the weekend suggest that a robust rebound will take time. As a result of new COVID-19 regulations, China’s industrial profits from January to July fell 1.1% year-over-year.
Powell spoke this week at an annual economic symposium in Jackson Hole, Wyoming, which has in the past hosted Fed lectures with market-moving effects.
Fed vows to “stay the course”
In order to combat the high inflation sweeping the nation, he stated that the Fed will likely need to maintain interest rates high enough to impede the economy “for some time.” The Federal Reserve has already increased its benchmark overnight interest rate four times this year in an attempt to curb the worst inflation in decades. While higher interest rates aid in containing inflation, they are detrimental to asset prices.
In energy markets, the price of U.S. benchmark crude increased 13 cents to $93.19 per barrel. Brent crude, the global benchmark, rose 11 cents to $99.12 a barrel.