NEW YORK (AP) — U.S. stocks fell Thursday after Federal Reserve officials raised the possibility that the interest rate cuts Wall Street is expecting this year may not materialize if inflation worsens.
The S&P 500 fell 1.2%, its worst day in seven weeks. It had risen nearly 1% the previous day, reaching a record high set last week.
The Dow Jones Industrial Average fell 530 points, or 1.4%, after reversing a nearly 300-point gain. The Nasdaq Composite fell 1.4%.
Financial markets were already on edge as traders made their final moves ahead of Friday’s jobs report, which itself could shake up the market. A late spike in oil prices has destabilized the situation amid ongoing tensions in the Middle East, threatening to add to inflationary pressures after the sharp rise in oil prices so far this year. Around the same time, U.S. bond yields fell in the bond market, potentially a sign that investors were looking for safer havens, and the level of anxiety among U.S. stock investors rose sharply.
Stocks fell after Minneapolis Fed President Kashkari said he doubted the need to cut interest rates if many sectors of the economy appeared strong despite high interest rates.
He had previously hinted at two rate cuts this year, but said: “If inflation continues to be flat, you’re going to question whether we need to cut rates at all.”
“There is a lot of momentum in the economy right now,” Kashkari said in an interview with Pension Investments.
Kashkari said his hypothesis depends on “a lot of ‘what ifs'” and one of the main drivers that drove the U.S. stock market up more than 20% from November to March: multiple interest rate cuts. I am raising my expectations for this. Lower interest rates eased pressure on the economy and at the same time boosted investment prices, and stock prices were already soaring on expectations for lower interest rates.
Traders had already sharply reduced their expectations for how many interest rate cuts the U.S. Federal Reserve would make this year, from six at the beginning of the year to three in recent days. This was broadly consistent with Fed officials.
But some recent updates on the economy have been hotter than expected, beyond disappointingly high inflation reports at the start of the year that could be seen as a temporary spike. A report earlier this week showing an unexpected rebound in growth in U.S. manufacturing caused particular concern.
Mr. Kashari is not a voting member of the Fed’s policy-making committee this year, but that doesn’t mean he doesn’t have a voice at the table.
“Based on Neel Kashkari’s comments this afternoon, markets are reacting to signs that the data-dependent Fed may need to reduce its rate-cutting cycle this year,” said Quincy Crosby, chief global strategist at LPL Financial. “We remain very sensitive,” he said.
In the bond market, the yield on the 10-year U.S. Treasury note fell to 4.30% from 4.35% late Wednesday. The yield on the two-year Treasury note, driven largely by Fed expectations, fell to 4.64% from 4.67% late Wednesday.
Yields were firm in the morning after reports that more U.S. workers filed for unemployment benefits than last week, but that number remains low compared to historical norms.
Wall Street is hoping the job market will cool enough to remove upward pressure on inflation, but not so much that too many people lose their jobs and trigger a recession.
That has heightened expectations for Friday’s report from the U.S. government showing how many jobs were added across the country last month. Economists expect the economy to cool down in March from February.
“As always, the monthly jobs report will have the final say,” said Chris Larkin, managing director of trading and investments at Morgan Stanley’s E-Trade.
In the stock market, Nvidia fell 3.4% after rising nearly 2% early on. This was the heaviest weight in the S&P 500.
Lamb Weston fell 19.4% after the frozen french fry maker said its transition to a new planning system had hurt its ability to fulfill customer orders. Although the impact of the transition has probably passed, the company lowered its sales and profit forecasts for this year. He also noted that restaurant traffic is likely to slow in the short term.
Among Wall Street winners, Conagra Brands rose 5.4% after the owner of brands such as Birds Eye and Duncan Hines reported a slower drop in revenue in the latest quarter than analysts expected. . Profits also exceeded expectations.
Levi Strauss also rose 12.4% after its latest quarterly results similarly beat expectations. The company also slightly raised its full-year profit forecast due to the expansion of direct sales of jeans to consumers.
Overall, the S&P 500 fell 64.28 points to 5,147.21. The Dow Jones Industrial Average fell $530.16 to $38,596.98, and the Nasdaq Composite Index fell $228.38 to $16,049.08.
In the oil market, the benchmark US crude oil price rose $1.16 per barrel to settle at $86.59, having already risen more than 20% since the beginning of the year. The international standard Brent crude oil rose $1.30 to $90.65.
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Associated Press writers Christopher Rugaber, Yuri Kageyama and Matt Ott contributed.
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An earlier version of this article’s summary incorrectly reported the S&P 500 change as 1%.
