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US stocks end with steep losses on tough Powell speech

It was the worst single-day point loss for the Dow Jones Industrial Average since mid-May

Published: Sat 27 Aug 2022, 1:22 AM

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  • AFP

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Traders work on the floor of the New York Stock Exchange (NYSE). — AFP

Traders work on the floor of the New York Stock Exchange (NYSE). — AFP

Wall Street equities ended with steep losses on Friday following tough talk from Federal Reserve Chair Jerome Powell, who warned of “pain” ahead for Americans in the battle against inflation, with the Dow losing more than 1,000 points.

It was the worst single-day point loss for the Dow Jones Industrial Average since mid-May and all three major indices dropped three per cent or more.

Markets in recent weeks had gained ground amid hopes the Fed would dial back its aggressive interest rate hikes, and perhaps even begin to cut next year.

But with inflation at a 40-year high, Powell doused any hope of a policy shift in his speech to the annual central banking symposium in Jackson Hole, Wyoming, saying the Fed will continue to act “forcefully” and keep policy tight, which is likely to slow the economy and the strong jobs market.

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Failing to do so “would mean far greater pain,” he said.

Keith Buchanan at Globalt Investments said: “This wasn’t a shocking speech by any stretch of imagination.”

But he said the negative reaction was due to “the last possibility of a pivot being kind of shoved off the table”.

While the major indices initially seemed to take the Fed chief’s blunt comments in stride, losses accelerated ahead of midday and got steeper by the close.

The Dow lost 3.0 per cent to finish the week at 32,283.4.

The broad-based S&P 500 fell 3.4 per cent to 4,057.66, while the tech-rich Nasdaq Composite Index dropped 3.9 per cent to close at 12,141.71.

Upbeat economic data meanwhile continued to trickle in, with the Fed’s preferred inflation index falling 0.1 per cent in July compared to June, according to the Commerce Department.

But Powell said the recent good news on prices is not enough to bring inflation back to the Fed’s 2 per cent target, and rates will stay high for some time.



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