Finder makes money from featured partners, but editorial opinions are our own.

S&P 500 slides as Powell says interest rates will be “higher than anticipated”

Posted:
News
Traders_getty_1800x1000

The S&P 500 sold off sharply on Tuesday, after comments from Fed chair Jerome Powell allude to more interest rate rises.

In a speech made on Tuesday, Federal Reserve (the Fed) Chairman Jerome Powell warned interest rates are likely to head higher than policymakers were expecting, as stubbornly high inflation remains.

This took its toll on the major US indexes with the S&P 500 closing down 1.5%.

The tech-heavy Nasdaq Composite fell 1.3%, while the Dow Jones Industrial Average was the most impacted, falling 1.7%.

All 11 major S&P sectors closed lower, with financials falling the furthest (down 2.5%), while the more inflation-resilient consumer staples fell the least, down 0.97%.

Powell's comments spark sell-off

There's an old saying in markets that "you can't fight the Fed".

And today's sell-off was in direct response to this.

During a Senate Banking, Housing and Urban Affairs Committee on Tuesday Federal Reserve chair Jerome Powell came out saying the central bank will need to do more to fight inflation.

"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," the US central bank chair said.

While pointing out that warmer weather over the holidays and other seasonal effects might be explaining the stronger than anticipated financial data, Powell says it might be a sign that the Fed hasn't gone far enough on rates.

In fact, he pointed out this could mean rate rises.

"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," he said.

The Fed has already raised its benchmark interest rate 8 times over the past year, lifting the country's official cash rate to 4.50–4.75%.

But the comments sparked the market, which is now expecting interest rates to go even higher.

As the share market sold off, CME Group's FedWatch calculator now has a 70% chance that rates will rise by 50 basis points, when the bank meets next.

Looking for a low-cost online broker to invest in the stock market? Compare share trading platforms to start investing in stocks and ETFs.

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involve substantial risk of loss and therefore are not appropriate for all investors. Past performance is not an indication of future results. Consider your own circumstances and obtain your own advice before making any trades.

Image: Getty Images

Ask a Question

You are about to post a question on finder.com.au:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our 1. Terms Of Service and 6. Finder Group Privacy & Cookies Policy.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
Go to site