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