US Indicies ended Friday with heavy losses after comments from Federal Reserve chairman Jerome Powell who warned of interest rate rises.
Fed Chair Jerome Powell said:
On Friday, Fed Chair Powell said in a speech to the central banking conference in Jackson Hole, Wyoming that the U.S. economy will need tight monetary policy “for some time” before inflation is under control.
“Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions,”
Powell’s said raising interest rates will prevent inflation from becoming a permanent part of the US economy. His comments sent US stocks into a tailspin with its major indices closing below 3%.
The S&P 500 fell 141.46 points, or 3.37%, to close the day at 4,057.66 points, whilst the Nasdaq Composite dropped 497.56 points, or 3.94%, to end at 12,141.71. The Dow Jones Industrial Average lost 1,008.38 points, or 3.03%, to end Friday at 32,283.40.
Third 75-basis-point interest hike ahead?
In March this year, the Federal Reserve’s key interest rate was just above zero. Since then, it has been raised to a range of 2.25% to 2.5% in a bid to combat inflation.
Interest rate futures linked to expectations about Fed policy declined on Friday shortly after Powell’s speech. This indicates raised chances of a third straight 75-basis-point interest rate hike.
Garrett Melson, portfolio strategist at Natixis Investment Managers said:
“The pushback is coming from the idea that it’s not about the pace of hikes going forward and how they tighten financial conditions, it’s about the duration of remaining at that restrictive policy stance,”
“That’s the nuance they are trying to push forward and Powell was, maybe, a bit more explicit in that today. But if you’ve listened to other Fed speakers in the last couple of weeks, it’s the same message.”
