Wall Street retreats amid economic uncertainty
Growing concerns over a U.S. “soft landing” amid increasingly aggressive comments from Federal Reserve officials, dragged stocks lower on Wednesday in a choppy week of trading.
More U.S. central bankers have echoed Fed Chairman Jerome Powell, who signaled earlier this week that aggressive rate hikes will likely be needed to contain inflation.
And although authorities continue to play down the risk of a recession, investors are skeptical.
A further spike in oil prices, which jumped around 5% due to the ongoing Russian war against Ukraine, added to the negative sentiment.
The Dow Jones Industrial Average and the tech-heavy Nasdaq Composite Index each fell about 1.3%, closing at 34,359 and 13,923 respectively.
The broad-based S&P 500, meanwhile, fell 1.2% to end at 4,456.
“Uncertainty about the war in Ukraine and how aggressive the Fed will want or need to be in tackling persistent inflation remain the bones of contention for markets,” Schwab analysts said.
Cleveland Federal Reserve Chair Loretta Mester said the central bank will need to time interest rate increases in the first half of the year to lift the benchmark to 2.5% higher. by the end of 2022 and continue to increase until 2023.
As Powell indicated on Monday, that will mean a multiple increase of at least half a point in the benchmark lending rate, she told reporters on Wednesday.
“The main economic challenge right now is inflation…And we have to do what we can to get inflation under control,” said Mester, who is a voting member of the Fed’s policy committee.
But she and Powell said the US economy was strong enough to withstand rate increases and the removal of stimulus measures planned to offset the hit from the Covid-19 pandemic.
Analysts say investors remain worried.
“US stocks fell as the harsh reality sets in that the Fed is unlikely to be able to navigate a soft landing as geopolitical risks will continue to maintain upward pressure on prices and force the Fed to make a difficult decision later this year,” Oanda analysts Edward Moya said. (AFP)