The markets ended the day lower Thursday, as investors reacted to fears of higher interest rates from the Federal Reserve.
The Dow Jones Industrial Average lost 347 points, or 1.1%, while the S&P 500 slid 1.3%. Meanwhile, the tech heavy Nasdaq Composite fell the most – declining 2.1% and ending the session nearly in correction territory.
Investors didn’t quite know what to make of Fed Chief Jerome Powell’s messaging at an event hosted by the Wall Street Journal on Thursday. Though Powell said the central bank will continue its policy of historically low interest rates until its employment and inflation goes were met…and did say it would take “some time” to meet those goals, he was unable to be more specific.
“Today we’re still a long way from our goals of maximum employment and inflation averaging 2% over time,” said Powell though he declined to be more specific on the time frame. “I’ve so far been able to not reduce it to an estimate of time. I mean, that will come, I think, when we can see that.”
When asked if there is a chance in the labor market might reach the Fed’s goal of maximum employment this year, Mr. Powell said, “No, I think that’s highly unlikely.”
Nonetheless, Powell got a new version of the “taper tantrum” from markets – with yields on the 10 year Treasury rising immediately after his comments to 1.545%, the highest level since before the pandemic.
Investors are fearful that inflation may kick into our economy in the coming months. A stimulus plan of $1.9 trillion is quite massive and some economists fear it will lead to inflationary pressures unlike anything we’ve seen in a generation.
Investors view higher rates from the Federal Reserve to likely cause a pull back in equity prices.