The Dow Jones Industrial Average fell more than 1,000 points on Aug. 26, as Federal Reserve Chairman Jerome Powell crushed Wall Street’s hopes of lowering the bank’s higher interest rates soon in an effort to control inflation.
The Nasdaq Composite fell 3.9% and the Dow fell 3%, both of which were the result of a general selloff driven by technology firms. Although higher rates reduce inflation, they also lower property prices. Jerome Powell said the Fed will probably need to maintain interest rates high enough to slow the economy In a bid to fight rising inflation in the country “for some time”, the S&P 500 fell 3.4% – its worst fall since mid-June.
The sell-off ended after a week of erratic trading, with major indices falling 4% or more overall. The S&P 500 overall fell 141.46 points to end at 4,057.66. Nearly 15% of the benchmark index has now fallen this year.
Read also: Eight crises that offer important lessons for the Fed
The Dow had closed 1,008.38 points down at 32,283.40. The last time the blue-chip average fell by 1,000 points was in May. The Nasdaq fell 497.56 points to close at 12,141.71, the biggest drop since June. The smaller company’s index, the Russell 2000, ended the day down 64.81 points, or 3.3%, at 1,899.83.
Read also: Central banks will do better if they focus only on inflation: Raghuram Rajan
In an effort to reduce demand and boost prices for goods and services, the Fed has suggested it will continue raising rates over the next year. However, other investors believed that if inflation dips, the central bank could stall or even reverse next year. As a result, equities gained momentum in the first few days of July and August.
Powell said exactly what some experts expected him to say in his speech on August 26. He said the Fed was firmly committed to managing inflation at the highest in four decades and that it would implement additional significant interest rate hikes in the coming months.
Read also: Chris Wood says the resiliency of the Indian stock market has surprised him
“These are unfortunate costs of reducing inflation. But failure to restore price stability will mean far more pain,” Powell said.
Powell conceded that the price hike would be detrimental to the American people and businesses, potentially hinting at the potential for a recession. However, if inflation is allowed to get worse, the misery will be worse, he added. “We should continue this till the work is done,” he said.
(with agency input)
catch all business News, market news, today’s fresh news events and breaking news Updates on Live Mint. download mint news app To get daily market updates.