Stocks slide as specter of four rate hikes looms
The U.S. stock market fell Tuesday after the new head of the Federal Reserve told a House panel that recent data indicate inflation will rise, leading some traders to expect as many as four interest rate hikes this year.
The Dow Jones Industrial Average slipped 299.24 points, or 1.16%, to 25,410.03. The S&P 500 fell 35.32 points, or 1.27%, to 2,744.28. The Nasdaq Composite was down 91.11 points, or 1.23%, at 7,330.35.
Jerome Powell, who succeeded Janet Yellen as the head of the U.S. central bank, appeared before the House Financial Services Committee and said the U.S. economy is strong and gradual interest rate hikes will continue. He also said recent data has increased his confidence that inflation will rise. On Thursday, Powell appears before the Senate Banking Committee.
Although the Fed has indicated it plans three rate hikes this year, Powell signaled rising inflation could prompt the Fed to be even more aggressive. Responding to a question about the Fed's likely path of rate increases, he said he "wouldn't want to prejudge" whether officials might pencil in four interest-rate increases this year, rather than the three they anticipated late last year.
The chairman also said he expects and wage growth to accelerate this year as the economy grows and U.S. fiscal policy becomes more stimulative. He also said he believes that gradually raising interest rates will boost inflation to the Fed's target range and sustain a strengthening labor market.
Previous communications from the Fed have indicated three rate increases in 2018 with investors expecting the first in March. Commenting on recent volatility in the markets the Fed chair points out that financial conditions remain accommodative. He says financial conditions, which had eased substantially in 2017 have reversed that trend but the Fed does not see that weighing heavily on its outlook for the economy, labor market and inflation.
The run of housing-related reports continues with the Case/Shiller home price report for December. New home sales dropped for the second consecutive month in January in a report released to start the week.
In Europe, M&A news helped to give shares a lift. London’s FTSE was up 0.3%. Shares of Sky jumped more than 18 percent after Comcast's $31 billion offer. It’s a bid that could derail Fox's plan to buy out Sky and sell it to Walt Disney.
France’s CAC was up 0.10%, while Germany’s DAX was off 0.07%.
In Asia, Japanese shares extended their recovery on Tuesday, hitting a three-week high. The Nikkei rose 1.1 percent to 22,389.86, its highest close since Feb. 5.
Hong Kong stocks fell from three-week highs with the Hang Seng index falling 0.7 percent, to 31,268.66,
China stocks snapped a six-session winning streak. The Shanghai Composite Index fell 1.1 percent at 3,292.07.