Calay News
Stocks took a sharp turn down on Tuesday after Federal Reserve Chair Jerome Powell’s comments raised concerns that rates may need to remain high for longer, which could lead to a potentially larger hike at the central bank’s next policy meeting. The Dow Jones Industrial Average fell by 560 points, or roughly 1.7%, while the S&P 500 and Nasdaq Composite also suffered losses, dropping by 1.5% and 1.2%, respectively. As the stock indexes fell, the 2-year Treasury yield rose to its highest level since 2007, reaching nearly 5%.
Powell’s remarks to the Senate Banking, Housing, and Urban Affairs Committee suggested that the Fed may consider a larger rate hike than last month’s 25 basis point increase at its next policy meeting, which is scheduled for March 21–22. According to Morgan Stanley, his comments also signaled a potential return to a half-point rate hike at the central bank’s March meeting, depending on the strength of incoming economic data.
The Fed Chair’s comments indicated that the peak rate for federal funds, or the terminal rate, will likely be higher than previously expected, despite investor hopes that the Fed might stop hiking soon. This news was not surprising, but it was a sobering reminder for markets after a brisk rally. Investors are concerned that more rate hikes will tip the economy into a recession, and bank shares led the losses as a result. Wells Fargo lost more than 4%, while Bank of America, Goldman Sachs, and JPMorgan Chase each lost more than 2%.
Powell’s comments raise the stakes for the release of February’s jobs report, which is expected to come out on Friday morning. Economists anticipate that the report will show 225,000 jobs added last month, according to a Dow Jones survey. A resilient labor market could allow the Fed to continue hiking rates, further affecting the stock market.
Despite these losses, the market remains volatile, and experts caution that these types of swings are to be expected. The Fed’s top priority is getting inflation under control, and they are prepared to increase the pace of rate hikes if economic data suggests it is warranted. Investors should continue to monitor economic data closely and be prepared for fluctuations in the market as a result of policy changes.
