On Wall Street, stock prices sharply fell on Tuesday after Federal Reserve Chairman Jerome Powell stated that due to high inflation, the central bank is likely to raise interest rates more than previously expected. The Dow Jones dropped by 1.72 percent to 32,856 points, while the S&P 500 fell by 1.53 percent to 3,986 points, and the Nasdaq index decreased by 1.25 percent to 11,530 points.
The decline in the indices followed Powell’s remarks in a report to Congress regarding the economic situation, where he indicated that the Fed is prepared to take larger steps if future economic data shows that stricter measures are needed to curb inflation. This raised investor fears that the central bank would increase key rates by an aggressive 0.50 percentage points at its March meeting, as all recent data indicates that inflation in the U.S. remains high and the economy continues to grow robustly.
As a result, the money market now estimates a 70 percent chance that the Fed will raise rates by 0.50 percentage points in March, while just on Monday, those odds were around 30 percent.
Powell, who will continue his report to Congress, also stated that the Fed is not abandoning its target inflation rate of 2 percent and that labor market movements do not indicate that an economic downturn is approaching. Following Powell’s messages, estimates have solidified that the Fed will raise rates to a range of 5.50 to 5.75 percent by September, while rates currently range between 4.50 and 4.75 percent.
However, analysts say this will also depend on further inflation data and labor market movements. Therefore, the focus for investors on Friday will be the employment report in the U.S. Analysts in a Reuters survey estimate that the number of employed in February increased by 200,000, significantly slower compared to 517,000 in January. Stock prices also fell on European exchanges yesterday.
