Stocks Fall Sharply as the Federal Reserve Hints at Temporary Inflation

A new stimulus package could usher in new confidence in the markets.


Thursday saw steep stock sell-offs as the Federal Reserve Chairman, Jerome Powell, neglected to reassure traders about inflation and bond yields.

The Dow plunged 345.95 points to 30,924.14, or 1.1 percent lower than the previous closing. At one point, the Dow had fallen sharply by over 700 points. The S&P 500 also closed down by 1.3 percent, settling at 3,768.47. It had dropped by 2.5 percent at its lowest point in the day. The Nasdaq also ended the day lower by 2.1 percent, ending up at 12, 723.47. Its losses guided the Nasdaq towards negative territory with a 1.3 percent deficit. It also entered correction territory and was down by more than 10 percent from its 52-week high.

Investors were nervous after Powell said that opening the economy back up might “create some upward pressure on prices.” Inflation is expected to be a temporary state as businesses open up and the workforce heads back to work. Powell said the central bank wouldn’t react by changing policy.

Powell did say that the rapid increase in rates had his attention, but the Feds would want to see a more expansive increase in rates before choosing to act. Powell made the comments during Wall Street’s Journal Jobs Summit.

The 10-year Treasury yield did jump 1.54 percent higher after Powell made his remarks. The yield had been getting the attention of investors, keeping them on edge. Last week, the yield reached a 1.6 percent high that ignited a stock sell-off. The yields had fallen back down before Powell’s remarks led to another spike.

Investors would have preferred for Powell to commit to changes in the Fed’s asset purchases to manage recent rate increases. Some expected that the bank would buy long-duration bonds and sell off short-term bills.

Many investors felt Powell was too vague about any actions the Fed would resort to if yields continue to rise to excessive levels.

Powell only hinted that price increases higher than the Fed’s 2 percent target lasting six months or so wouldn’t cause long-term inflation expectancies to be altered.

Gold also shed more than 1 percent during the sell-offs, almost resulting in a nine-month low.

According to the Labor Department, weekly jobless claims were better than expected. Filings for first-time unemployment benefits for the week ending February 27 reached 745,000, just a tad below analysts’ estimates of 750,000.

Stimulus measures are expected to increase optimism about the market. The $1.9 trillion economic relief package is in the Senate’s hands. The bill was voted on by the House last Saturday.


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