Stocks Fall, Yields Shake on Fears of Accelerating Rate Hikes | WGN Radio 720

NEW YORK (AP) — Stocks fell on Wall Street on Tuesday after the Federal Reserve chairman warned that continued pressure on inflation could accelerate rate hikes that hurt the economy. doing.

The S&P 500 was down 0.9% in intraday trading. At 11:51 a.m. ET, the Dow Jones Industrial Average fell 307 points (0.9%) to 33,117, while the Nasdaq Composite fell 0.6%.

Inflation and the Fed’s efforts to combat it have been at the center of Wall Street’s wild swings this year. After appearing to be steadily declining since last summer, reports on inflation were surprisingly hot last month. So are the economic data sets, such as the job market and US consumer spending.

This raised concerns on Wall Street that inflation was stronger than feared and that the Fed might need to raise interest rates higher than previously thought. Higher interest rates slow down the economy, which may reduce inflation, but it has a negative impact on the prices of stocks and other investments. It also increases the risk of an ensuing recession.

Its chairman, Jerome Powell, confirmed those forecasts on Tuesday, saying recent data meant “the final level of interest rates is likely to be higher than previously forecast.” Also, in testimony before a Senate committee, the Fed said it was ready to increase the pace of rate hikes again if needed.

It will be a sharp turnaround as it has just slowed to 0.25 points from last month’s 0.50 and 0.75 point hikes.

“If the overall data show that faster tightening is warranted, we are ready to accelerate the pace of rate hikes,” Powell said. “Restoring price stability will require maintaining a restrictive stance on monetary policy for some time.”

After sitting at virtually unchanged levels just before Powell’s testimony, the stock fell shortly after.

Wall Street was already convinced that higher interest rates were on the horizon than previously thought and that the Fed could even return for an even bigger rate hike following last month’s data report.

After getting last month’s explosive jobs data and other surprisingly strong data, Wall Street has largely abandoned hopes of a potential rate cut in the second half of 2023 that permeated earlier this year. Paused.

That was most evident in the bond market, where 10-year Treasury yields topped 4% last week, reaching their highest level since November. Helps set interest rates for mortgages and other important loans.

It approached 4% again on Tuesday following Chairman Powell’s comments before slipping to 3.96% later on Monday.

The 2-year yield, heavily driven by Fed expectations, rose from 4.87% to 4.94%, nearing its highest level since 2007.

Traders are now seeing roughly even odds that the Fed’s next rate hike will either be another move of 0.25 percentage points or accelerate to 0.50 percentage points. Just one day ago, they were betting on a small increase just two-thirds of the time, according to CME Group data.

Getting more data points will no doubt help the Fed shape its decision ahead of its next meeting on rates later this month.

On Friday, the US government’s monthly employment report will be released. The most notable of these is how workers’ wages are rising. The Fed’s concern is that if it raises rates too strongly, it could put further upward pressure on inflation.

Next week’s two reports will provide an update on how high inflation remains at both the consumer and wholesale levels.

Big shifts among investors about inflation and where the Fed is headed have led to sharp moves in the market. Equities rose and bond yields fell in January amid lower inflation and rising hopes that the Fed will ease interest rates. Then last month’s powerful data storm dashed those hopes, sending stocks lower and bond yields skyrocketing.

On Wall Street Tuesday, WW International, better known as WeightWatchers, surged after announcing it would enter the prescription weight loss business with the acquisition of telemedicine platform Sequence. WW will pay Sequence he $106 million. Sequence serves approximately 24,000 members nationwide as of his February.

WW stock jumped 42.4%.

Overseas stock markets were mixed.


Contributed by Yuri Kageyama and Matt Ott, AP Business Writers. Stocks Fall, Yields Shake on Fears of Accelerating Rate Hikes | WGN Radio 720

Related Articles

Back to top button