Wall Street’s main indexes fell on Wednesday as Federal Reserve Chair Jerome Powell remained firm in bringing inflation back to 2% target, spurring worries of more monetary tightening. “Inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go,” Powell said in his prepared remarks ahead of his testimony before the House Financial Services Committee. The Associated Press has the story:
Wall Street drops as Powell stays firm on rates
Newslooks- NEW YORK (AP)
Tech stocks are falling Wednesday, keeping Wall Street mixed and sapping more momentum from its five-week rally.
The S&P 500 was 0.4% lower in midday trading. It’s on pace for a third straight pullback after rallying last week to its highest level in more than a year.
The Nasdaq composite was particularly weak, falling 1.1% as of 11:45 a.m. Eastern time. A slight majority of stocks on Wall Street were rising, however, and the Dow Jones Industrial Average was up 15 points, or less than 0.1%, at 34,069.
Wall Street has been on a tear this year, and the S&P 500 has rallied roughly 14% amid hopes that inflation is coming down quickly enough for the Federal Reserve to stop hiking interest rates soon, which could allow the economy to avoid falling into a long-expected recession. Some analysts say stock prices have run too far, too fast when inflation has remained stubbornly high and the Fed may have to keep rates higher for longer.
Fed Chair Jerome Powell said Wednesday that “the process of getting inflation back down to 2% has a long way to go.” He said again that a couple more rate increases may be on the way, though the speed of the hikes is likely to slow after moving at a furious rate since early last year.
“Given how far we’ve come, it may make sense to move rates higher but to do so at a more moderate pace,” he said in testimony before a House of Representatives committee. He likened it to slowing down from 75 miles per hour on a highway to 50 and then even slower as the destination nears.
High rates have already helped cause three high-profile failures in the U.S. banking system. And the industry remains under pressure, even after the federal government acted quickly to provide support.
Smaller and regional banks account for about 50% of U.S. commercial and industrial lending, according to Ann Miletti, head of active equity at Allspring Global Investments. And pressure on these banks would make it tougher for smaller and midsized businesses to get loans, which would hurt the economy.
Miletti said she’s leaning toward the probability of a coming U.S. recession because of how much the Fed has already raised rates in such a short time. She said the recession may not be very deep, but it could still last longer than many predict.
“Inflation is retreating,” she said, “but it won’t be a smooth decline.”
In the bond market, yields rose. The yield on the 10-year Treasury climbed to 3.77% from 3.72% late Tuesday. It helps set rates for mortgages and other important loans.
The two-year Treasury yield, which moves more on expectations for the Fed, rose to 4.73% from 4.69%.
Higher interest rates drag on all kinds of stocks, bonds and other investments. But high-growth stocks tend to be some of the hardest hit, and several Big Tech stocks were among the heaviest weights on the market.
Nvidia slumped 2.7%, giving back some of its spectacular gains from earlier this year driven by Wall Street’s frenzy around the artificial-intelligence industry. The chip maker is still up more than 190% for the year so far after saying AI would result in a tremendous leap in its revenue.
Amazon slipped 0.8% after the Federal Trade Commission accused it of enrolling consumers into its Prime program without their consent and making it difficult to cancel their subscriptions.
FedEx fell 0.7% after it gave a forecast for upcoming earnings that looked low against some analysts’ expectations. That was despite reporting stronger profit for the latest quarter than Wall Street forecast.
On the winning side of Wall Street, Dollar Tree jumped 5.5% after it stuck with its forecast for earnings this fiscal year.
Energy stocks also climbed as oil prices rose. Exxon Mobil rose 1.6%, and Chevron climbed 1.2%.
In markets abroad, stocks continued to tumble in China amid worries about a stumbling recovery for the world’s second-largest economy. The Hang Seng in Hong Kong fell 2% for its second straight sharp drop after the Chinese government cut some interest rates by less than some investors had hoped.
Stocks in Shanghai fell 1.3%, and South Korea’s Kospi dropped 0.9%.
In Europe, stock indexes were modestly lower.
The FTSE 100 in London dipped 0.1% after a U.K. report on inflation came in hotter than expected. That raised speculation that the Bank of England will hike interest rates again at its meeting Thursday.
