NEW YORK – Wall Street shares turned decidedly negative on Friday (Aug 26) following tough talk from Federal Reserve chairman Jerome Powell, who warned of “pain” ahead for Americans in the battle against inflation.
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 those hopes 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.
Failing to do so “would mean far greater pain,” he said.
While the major indices initially seemed to take the comments in stride, losses accelerated ahead of midday.
Around 1540 GMT, the Dow Jones Industrial Average had lost 1.6 per cent to 32,749.17.
The broad-based S&P 500 fell about 2 per cent to 4,117.16, while the tech-rich Nasdaq Composite Index slid 2.4 per cent to 12,327.84.
Quincy Krosby of LPL Financial said Powell “did not equivocate.” Instead, he “again made it clear that financial conditions are going to tighten.”
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.