The Dow dropped 3% and the Nasdaq composite ended 3.9% lower, reflecting a broad sell-off led by technology stocks. Higher rates help corral inflation, but they also hurt asset prices.
“He basically said there will be pain and that they won’t stop and can’t stop hiking until inflation moves a lot lower,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments. The Dow lost 1,008.38 points to close at 32,283.40. The last time the blue-chip average had a 1,000-point drop was in May.The Russell 2000 index of smaller companies fell 64.81 points, or 3.3%, to finish at 1,899.83.
“Powell reiterated that the Fed is worried about rising prices, and getting inflation under control is emphatically job number one,” said Jeff Klingelhofer, co-head of investments at Thornburg Investment Management. For now, the debate on Wall Street is whether the Fed will raise short-term rates by either half a percentage point next month, double the usual margin, or by three-quarters of a point. The Fed's last two hikes have been by 0.75 points, and a slight majority of bets on Wall Street are favoring a third such increase in September, according to CME Group.
Following the reports and Powell’s comments, the two-year Treasury yield rose for much of the day, but slipped by late afternoon to 3.36% from 3.37% late Thursday. It tends to track expectations for Fed action.
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