S&P 500 dropped 75 points or 1.7% to 4,319 in morning trading, while the Dow Jones Industrial Average fell 1.7% and the tech-rich Nasdaq Composite fell 1.4%. After Federal Reserve Chair Jerome Powell stated that aggressive increases in interest rates are needed to combat inflation, shares lost ground prior to the opening of trade.
Powell stated that the Fed must act faster to combat high inflation in a panel discussion Thursday at the International Monetary Fund. This suggests that sharp interest rate rises are possible in the coming months.
Half-point rate hike expected
Powell stated, "I would estimate that 50 basis points will also be on the May meeting agenda."
The comments of Powell come as the U.S. is facing its most severe bouts of inflation in over 40 years. The Consumer Price Index tracks a basket goods and services and rose 8.5% in March compared to a year ago.
The Fed already announced a quarter percentage point rate increase to stop the surge. Wall Street analysts expect a half percentage rate increase at the Fed's next meeting in two week. To limit the effect of rising prices on consumers and businesses, other central banks have raised interest rates.
The Fed has increased its benchmark short-term interest rate in the past by a smaller quarter-point increment. However, policymakers believe the economy is strong and can prevent a recession from forming. They also hope to keep inflation under control. The economic data indicates that the labor market is tight and manufacturing continues to recover amid strong consumer demand.
Rubela Farooqi (chief U.S. economist, High Frequency Economics) stated in a report that "We continue to anticipate two 50-basis point rate hikes in June and May." "Any future action will depend on not only the path of inflation, but also how the economy reacts to rapid rate rises over the next few month."
As investors look for higher interest rates, bond yields are on the rise. After hovering close to its highest level since late 2018, the yield on the 10-year Treasury remained steady at 2.92% on Friday.
Ukraine: Eyes on Ukraine
Investors are also monitoring developments within Ukraine. They anticipate more global supply chains disruptions as well as market volatility due to the brutal war between President Vladimir Putin and his comrades .
"Under the burden of war, global energy, and food risk, equity market may begin to buckle, unfortunately in quite spectacular ways." Clifford Bennett is chief economist at ACY Securities. He stated that the best way to protect your investment portfolio was to avoid equities, buy gold, oil, and the U.S. Dollar.
Powell is optimistic about the economy's future despite the uncertainty and the rising prices.
He stated that the U.S. economy was strong and performing well according to most forecasts.
Benchmark U.S. crude oil fell $1.07 to $102.72 per barrel. The crude oil price rose 1.6% Thursday, and is now up about 40% for the year. This has caused gasoline to become more expensive, which is a bigger blow to consumers' pockets. Brent crude oil, an international standard, fell from $106.92 to $106.92 per barrel.
