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Fed members’ latest interest rate outlook shakes the market
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Rising tensions in the Middle East worries markets
Complicating matters are geopolitical concerns, particularly reports that Iran is threatening to retaliate against Israel over an attack in Syria that killed Iranian military personnel.
The result was a sudden and troubling stock market reversal. The Dow Jones Industrial Average gave up a 294-point gain and fell more than 530 points, or 1.4%, to close at $38,597. This was the largest single-day point decline since March 22, 2023.
The Standard & Poor’s 500 Index fell 1.2%, and the Nasdaq Composite Index fell 1.4%.
The S&P 500 has fallen 2% since its all-time high on March 28.
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Oil prices rise, mortgage interest rates fall
Oil prices are soaring and there is growing uncertainty about what Friday’s U.S. report will be.
West Texas Intermediate (WTI), the benchmark for US crude oil, rose $1.16 to $86.59. Rising prices are putting pressure on retail gasoline prices, which have increased 14% this year to $3.567, according to AAA.
A higher-than-expected increase in key numbers could put further pressure on the market.
The decline in stocks caused a rise in bonds, and interest rates actually fell by the end of the day. This is a clear sign that many traders wanted the safety associated with U.S. Treasuries rather than riskier stocks.
The yield on the 10-year U.S. Treasury note fell to 4.31% from Wednesday’s 4.355%. Mortgage rates rose above 7% this year, but have fallen to 6.99%, according to Mortgage News Daily.
The stubborn inflation conundrum
What worries Fed officials is the recent persistence of inflation. The Fed wants clear evidence that inflation is on track to reach its 2% target. And if they don’t get the data they want, they may wait to cut rates.
Further economic analysis:
Chicago Fed President Austan Goolsby told the Chicago group that he was particularly concerned about rising housing costs and rents.
Still, Goolsby thinks there’s still more rate cuts to come, assuming inflation continues to decline. Consumer Price Index (CPI) inflation peaked at nearly 9% in June 2022. In February he was at 3.2%.
But Richmond Fed President Tom Barkin told a group of homebuilders that “nobody wants to see another round of inflation. There is time for the clouds to clear before we begin the process of lowering rates.”
Major decliners on the day included Paramount Global PARA (down 8.5%), Advanced Micro Devices AMD (down 8.3%), and semiconductor giant Nvidia. (NVDA) 3.44% off.
Gainers included GE Aerospace GE (up 1.2%) and defense contractor Lockheed Martin. (LMT) up 1.4%.
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