Wall Street Tumbles as Federal Reserve Chief Calls for Heavier US Rate Hikes 'Appropriate'

© AP Photo / Mark LennihanA sign for Wall Street hangs in front of the New York Stock Exchange, July 8, 2021.
A sign for Wall Street hangs in front of the New York Stock Exchange, July 8, 2021. - Sputnik International, 1920, 21.04.2022
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WASHINGTON (Sputnik) - US stocks tumbled on Thursday after Federal Reserve Chairman Jerome Powell said it would be “appropriate” to use heavier interest rate hikes to battle inflation, adding to market jitters that an economy rebounding from the coronavirus pandemic could suffer next from the central bank’s tough monetary policies.
The three major US stock indexes - the S&P 500, the Dow Jones Industrial Average and the Nasdaq Composite - closed down by an average of 1.5% after Powell said the Fed should probably move faster in raising rates as Fed officials veered toward a 50-basis point, or half-percentage point, hike for the US central bank’s upcoming interest rate decision in May.
“The primary focus for investors right now continues to be what central banks are doing and whether their efforts will bring inflation back to a more acceptable level. They're moving at very different speeds,” Craig Erlam, analyst at online trading platform OANDA, said.
After slashing US rates to nearly zero at the height of the coronavirus outbreak, the central bank's policy-making Federal Open Market Committee, or FOMC, approved the first pandemic-era rate hike on March 16, raising rates by 25 basis points, or a quarter point. That brought key lending rates to between 0.25% and 0.5%.
Many FOMC members have concluded since that the March hike was too tame to rein in inflation galloping at 40-year highs. They are pushing for “one or two” 50-basis point hikes in the near term to get inflation back to the acceptable level of 2% per year, versus the Consumer Price Index's 8.5% reading during the year to March.
The Federal Reserve building is pictured in Washington, D.C., U.S., August 22, 2018. - Sputnik International, 1920, 19.04.2022
US Economy to Do Well Even With Federal Reserve’s Interest Rate Hikes - Fed Officials
Some economists, however, argue that aggressive rate hikes could dampen economic growth and possibly even tip the US economy into recession. The economy contracted 3.5% in 2020 from disruptions forced by the coronavirus pandemic, but expanded by 5.7% in 2021, growing at its fastest pace since 1982. Growth is already forecast at a moderate 2.8% this year and strong rate hikes could push it into negative territory, some economists warn.
Thursday’s stock market action reflected those fears, as the S&P 500 - which groups the top 500 US stocks - finished down 66 points, or 1.5%, at 4,394.
The Nasdaq Composite, which houses the biggest technology names of the world, including Amazon, Apple, Netflix and Google, closed down 278 points, or 2.1%, at 13,175.
The Dow Jones Industrial Average, which lists travel, aviation and cross-industry value stocks, settled down 368 points, or 1.1%, at 34,793.
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