Dow plunges 800 points as Fed signals steeper rate hikes to combat inflation

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US stocks plunged Friday as investors weighed the possibility that the Federal Reserve could hike interest rates more than expected and digested days of disappointing earnings results from major companies.

The S&P 500 fell 2.8%, closing out a third straight losing week. The Dow Jones Industrial Average was off 981 points, or 2.8%, at 33,811.40. The Nasdaq composite slid 2.6%.

The selloff meant that the Dow recorded its fourth consecutive week of declines. The S&P has been on a downward keel for three consecutive weeks.

A day earlier, Wall Street seemed set for healthy gains for the week after American Airlines, Tesla and other big companies reported strong profits or better forecasts for future earnings than analysts expected.

Such corporate optimism has helped stocks remain relatively resilient, even as worries swirl about the highest inflation in decades, the war in Ukraine and the coronavirus.

Markets buckled as the chair of the Federal Reserve indicated the central bank may indeed hike short-term interest rates by double the usual amount at upcoming meetings, starting in two weeks.

On Thursday, Federal Reserve Chairman Jerome Powell said it was “absolutely essential” for the central bank to tame surging inflation – indicating a half-percentage-point hike could occur in May. The Fed generally hikes rates by a quarter-percentage-point at a time.

Earlier in the week, the Fed’s James Bullard said he wouldn’t rule out the possibility of an even larger hike.

The US has been dealing with inflation that is the highest in decades.

“After years of being very accommodative, the Fed has made it clear that policy is going to be tighter for the foreseeable future,” Brian Price, the head of investment management at Massachusett-based Commonwealth Financial Network, told The Post.

“Their hawkish stance is giving investors pause as many are left to evaluate the impact on profit margins and equity multiples moving forward.”

The Fed has already raised its key overnight rate once, the first such increase since 2018, as it aggressively removes the tremendous aid thrown at the economy through the pandemic.

It’s also preparing other moves to put upward pressure on longer-term rates.

This is shaping up to be the fourth consecutive week that the Dow has fallen.
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By making it more expensive for businesses and households to borrow, the higher rates are meant to slow the economy, which should hopefully halt the worst inflation in generations.

But they can also trigger a recession, all while putting downward pressure on most kinds of investments.

“We’re still very early into earnings season but higher costs are already denting profit margins and there doesn’t appear to be any material relief in sight,” Price said.

“It now appears likely that the Fed is ready to raise interest rates by 50 basis points at their next meeting and the market may have been spooked by the mere mention of 75 basis points by the Fed’s James Bullard recently.”

Tech stocks sold off this week after Netflix, a longtime Wall Street darling, spooked investors by revealing it lost 600,000 US subscribers last quarter.

Analysts will be watching closely when several blue-chip tech firms, including Apple, Amazon and Microsoft, report earnings next week.

With Post Wires