Wall Street dropped sharply in the morning session on Tuesday after the Fed’s chairman sent signals to the market that the central bank is not done with the rate hikes.
The Dow Jones Industrial Average fell 302 points or 0.90% to 33,129.26 points after the market digested Jerome Powell’s statement. Meanwhile, S&P 500 dropped 1.00% and Nasdaq Composite decreased 0.78%.
Fed’s chairman Jerome Powell made a comment as he addressed the Congress on Tuesday, saying that interest rates are likely to be higher than the central bank had expected, citing data earlier this year indicating that the trend of rising prices has reversed the deceleration that it showed in late 2022, which made policymakers believed that the end was near. Due to this reason, the chairman warned that tighter monetary policy up ahead could slow a growing economy.
“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
After the statement, the CME FedWatch Tool shows a 48.4% probability of a half-percentage point of rate hike at the meeting later this month, up from 30.6%. A month ago, the probability for a half-point increase was only 3.3%.
Currently, 5.6% for the Fed’s Fund Rate is a new terminal rate by September.