Shares are falling after Federal Reserve officials expressed a willingness to aggressively raise interest rates to fight inflation.
The S&P 500 fell 75 points, or 1.7%, to 4,319 in the morning trade, the Dow Jones Industrial Average fell 1.7% and the high-tech Nasdaq Composite sank 1 4%. Shares lost ground before the start of negotiations after Federal Reserve Chairman Jerome Powell indicated that aggressive interest rate hikes were needed to fight inflation.
At a roundtable discussion on Thursday by the International Monetary Fund, Powell said the Fed needs to move faster than before to deal with high inflation, suggesting that interest rates are likely to rise sharply in the coming months. of interest.
A half-point rate hike is expected
“I would say 50 basis points will be on the table for the May meeting.” said Powell.
Powell’s comments come as the United States faces its fiercest inflation episode in 40 years. The consumer price index, which tracks a basket of goods and services, rose 8.5% in March from a year ago.
To help stop this rise, the Fed has already announced a quarter-percentage point rate hike. Wall Street analysts now expect a half-percentage rate hike at its next meeting in two weeks. Other central banks have also moved to raise interest rates in an attempt to mitigate the impact rising prices for businesses and consumers.
In the past, the Fed has typically raised its benchmark rate in the short term with more modest quarter-point increases. But policymakers believe the economy is solid and can avoid triggering a recession while slowing inflation. Economic data show that labor market conditions are tight, while manufacturing continues to recover amid strong consumer demand.
“We continue to expect two 50 basis point rate hikes in May and June,” Rubeela Farooqi, chief economist at the US High Frequency Economics, said in a report. “Any further action will depend not only on the trajectory of inflation, but also on the response of the economy to the rapid rate hikes over the coming months.”
Bond yields have been gaining ground as investors prepare for higher interest rates. The 10-year Treasury yield remained stable at 2.92% on Friday after being close to its highest levels since late 2018.
Eyes on Ukraine
Investors are also vigilant evolution in Ukraineanticipating more global supply chain disruptions and market volatility as The brutal war of Russian President Vladimir Putin continues.
“Under the weight of war, global energy and food risk, equity markets can start to give way, unfortunately in a pretty spectacular way. We’ve been saying for a long time that the only way to protect your portfolio is “Investing is being prudent with stocks and buying gold, oil and the US dollar,” said Clifford Bennett, chief economist at ACY Securities.
Despite uncertainty and rising prices, Powell remains optimistic about the economic outlook.
“The US economy is very strong, performing very well according to most forecasts,” he said.
The benchmark U.S. crude fell $ 1.07 to $ 102.72 a barrel. It rose 1.6% on Thursday and has risen about 40% during the year. This has made gasoline more expensive, further reducing the consumer portfolio. Brent crude, the international standard, lost $ 1.04 to $ 106.92 a barrel.
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