Following remarks made by Federal Reserve Chair Jerome Powell at a press conference, the major US stock market averages turned lower. Powell stated that the rate-setting committee had a view that inflation is not going to come down quickly, which would mean that it would not be appropriate to cut interest rates in the near future. The Dow Jones Industrial Average fell by 245 points, the Nasdaq was down by around 0.3%, and the S&P 500 fell by 0.5%.
Powell also addressed the recent run on Silicon Valley Bank, noting that the event was historically unprecedented and would require regulatory attention. He said that he was not aware that this could happen so quickly and that the Vice Chair would lead the effort to design ways to address the issue.
The Fed Chair said that it may take time for rate cuts to seem plausible, adding that demand and labor market conditions would need to weaken further to see progress within non-housing services. Powell also said that the initial signs of labor market weakness suggest that the path to a soft landing for the US economy is not off the table.
Powell noted that the Fed has not made a firm decision on whether it will stop raising interest rates. He said that the central bank is prepared to continue to hike if economic data points in that direction. However, the Fed omitted a sentence from its previous statement that suggested additional policy firming may be necessary, which some analysts believe could indicate a pause in rate hikes.
Overall, investors reacted to Powell’s comments as a sign that the Fed may not cut rates in the near future and that a pause in rate hikes could be forthcoming. The stock market turned negative initially but recovered shortly after. Bond yields fell, and oil prices also dropped. The market is anticipating the Fed’s next steps, with many hoping that this interest rate hike is the last one in the Fed’s tightening cycle.
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