Stocks fell on Thursday as interest rates jumped and Federal Reserve officials signaled that rate hikes to curb inflation are far from over.
The Dow Jones Industrial Average fell 245 points, or 0.7%. The S&P 500 fell 1.2%, while the Nasdaq Composite fell 1.4%.
The president of the Federal Reserve of St. Louis, James Bullard said in a speech Thursday that “the policy rate is not yet in an area that can be considered restrictive enough.”
“The change in the stance of monetary policy appears to have had only limited effects on observed inflation, but market prices suggest that disinflation is expected in 2023,” Bullard added.
The yield on the 2-year Treasury rose to 4.437% on Thursday morning, raising fears that higher rates could send the economy into recession.
“I’m looking at such a tight labor market, I don’t know how you’re going to continue to get that level of inflation down without having a real slowdown, and maybe we even have a contraction of the economy to get there,” he said. Kansas City Fed President Esther George to the Wall Street Journal on Wednesday.
Stocks most vulnerable to a recession and higher rates led losses. Financials, including Wells Fargo, were lower. Tech stocks Tesla and Netflix declined.
“Further monetary tightening and the cumulative impact of this year’s rate hikes suggest recession risks remain elevated,” Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote in a note. “We continue to believe that the macroeconomic preconditions for a sustained recovery – that interest rate cuts and a trough in business growth and earnings are on the horizon – have not yet been met.”