Dow plunges after Fed chair’s rate comments spook markets

Business

By Ariel Zilber

Investors got spooked on Monday after Fed Chair Jerome Powell said in a “60 Minutes” interview that he’s in no hurry to cut interest rates.

The Dow Jones Industrial Average fell by as much as 300 points during the course of trading before paring its losses toward the end of Monday’s session.

The Dow was down or 0.7%, dropping by 274.30 points while the S&P 500 was down by as much as 0.75% before rebounding to finish down 0.3%.

The tech-heavy Nasdaq index was down by as much as 0.85% before noon before finishing at 0.2% below the opening number.

In the interview, Powell said a rate cut next month was premature, though he said that the Fed still planned on at least three rate cuts this calendar year – in line with investor expectations.

The interview with Powell was filmed on Thursday — a day before the government released a much better-than-expected jobs report showing that companies added 353,000 people to their payrolls in January. Wage growth remained strong while unemployment stayed at 3.7%.

Before the broadcast of Powell’s interview, Wall Street observers had penciled in at least three rate cuts this year – with the first one coming in March.

The Fed chair said the central bank can be “prudent” in deciding when to cut its benchmark interest rate, with a strong economy allowing it time to build confidence inflation will continue falling.

“The prudent thing to do is … to just give it some time and see that the data confirm that inflation is moving down to 2% in a sustainable way,” Powell said.

“We want to approach that question carefully,” with the economy’s current strength keeping the risk of recession reduced as policymakers wait for the final bits of data that will convince them to proceed with rate cuts.

Powell declined to say in the interview that the US was on the verge of a “soft landing” – the term for bringing down high rates of inflation without the need for mass unemployment.

He said the Fed was watching risks to both its price stability and maximum employment mandates, and would consider weakening job growth as a possible reason to accelerate rate cuts.

“We’re focused on the real economy and doing the right thing for the economy and for the American people over the medium and long term,” Powell said.

“We have to balance the risk of moving too soon…or too late.”

With Post Wires