Dow Drops 575 Points After Warning From Fed Chief

Powell says rate hikes could be stepped up
By Newser Editors and Wire Services
Posted Mar 7, 2023 3:56 PM CST
Wall Street Tumbles After Warning From Fed Chief
Federal Reserve Chairman Jerome Powell testifies during a Senate Banking Committee hearing on Capitol Hill in Washington, Tuesday, March 7, 2023.   (AP Photo/Andrew Harnik)

Stocks sank on Wall Street after the head of the Federal Reserve warned it could speed up its economy-rattling hikes to interest rates if pressure stays high on inflation. The S&P 500 fell 62.05 points, or 1.5%, to 3,986.37. The Dow Jones Industrial Average fell 574.98 points, or 1.7%, to 32,856.46. The Nasdaq composite fell 145.40 points, or 1.2%, to 11,530.33. Both had been nearly flat just before Fed Chair Jerome Powell said the central bank is ready to get more aggressive on rate hikes if warranted. Treasury yields also shot higher following Powell’s testimony before a Senate committee. The yield on the two-year Treasury is near its highest level since 2007.

After seeming to be on a steady decline since last summer, reports on inflation last month came in surprisingly hot. So did a suite of other data on the economy. That raised fears that inflation is staying stickier than feared and that the Fed will have to raise rates higher than earlier thought. Powell, on Tuesday confirmed some of those fears and said the recent data mean "the ultimate level of interest rates is likely to be higher than previously anticipated." He also said in his testimony to a Senate committee that the Fed is ready to increase the pace of its hikes again if needed. That would be a sharp turnaround after it had just slowed its pace of increases to 0.25 percentage points last month from earlier rate hikes of 0.50 and 0.75 points.

Traders now see a roughly two-in-three chance the Fed will accelerate its rate hikes and raise by 0.50 percentage points on March 22, the AP reports. That's a flip-flop from a day earlier, when they were betting the Fed would stick with the smaller increase of 0.25 points, according to data from CME Group. More fireworks may arrive later this week and into next as the Fed gets more data points that will surely help shape its decision making ahead of its next meeting on interest rates later this month. On Friday will come the US government's monthly jobs report. Within that, most of the attention will be on how high wages are going for workers. Two reports next week will give updates on how high inflation remains at both the consumer and at the wholesale levels.

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On Wall Street Tuesday, WW International, better known as WeightWatchers soared after saying it's getting into the prescription weight loss business with the purchase of telehealth platform Sequence. Shares of WW jumped 79%. (More stock market stories.)

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