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Wednesday, March 29, 2023

Stocks drop, yields rise on worries about faster rate hikes

NEW YORK (AP) — Stocks are falling on Wall Street Tuesday after the head of the Federal Reserve warned it could pick up the pace of its hikes to interest rates if pressure on inflation stays hotter than expected.

The S&P 500 was 0.8% lower in morning trading. The Dow Jones Industrial Average fell 188 points, or 0.6%, to 33,242, as of 10:09 a.m. Eastern time, while the Nasdaq composite was 0.9% lower.

Inflation and what the Fed is doing about it have been at the center of Wall Street’s wild actions this year. After seeming to be on a steady decline since peaking last summer, reports on inflation last month came in surprisingly hot. So did a suite of other data on the economy, including the job market and spending by U.S. consumers.

That raised fears on Wall Street that inflation is remaining stickier than feared and that the Fed will have to raise interest rates higher than earlier thought. Higher rates can drag down inflation because they slow the economy, but they hurt prices for stocks and other investments. They also raise the risk of a recession later on.

Its chair, Jerome Powell, said in prepared testimony to a Senate committee Tuesday that the Fed is ready if needed to increase the size of its rate increases again. It would be a sharp turnaround after it had just slowed its pace of increases down to 0.25 percentage points last month from earlier hikes of 0.50 and 0.75 points.

“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Powell said. “Restoring price stability will likely require that we maintain a restrictive stance of monetary policy for some time.”

Stocks fell immediately after being virtually unchanged just before Powell’s testimony.

Since getting last month’s blowout jobs report and other surprisingly strong data, Wall Street has largely abandoned hopes that percolated early this year for a possible cut to interest rates later in 2023. It also upped its forecast for how high the Fed will ultimately take rates before pausing.

That’s been most clear in the bond market, where the yield on the 10-year Treasury topped 4% last week and hit its highest level since November. It helps set rates for mortgages and other important loans.

On Tuesday, it rose to 3.99% to from 3.96%.

The two-year yield, which moves more on expectations for the Fed, climbed to 4.96% from 4.87%.

More fireworks may arrive later this week and into next as the Fed gets more data points that will surely help shape their decision making ahead of their next meeting on interest rates later this month.

On Friday will come the U.S. government’s monthly jobs report. Within that, most of the attention will be on how high wages are going for workers. The fear at the Fed is that too-strong gains could lead to more upward pressure on inflation.

Then two reports next week will give updates on how high inflation remains at both the consumer and at the wholesale levels.

The big shifts among investors about where inflation and the Fed are heading have led to sharp movements for markets. In January, stocks rallied and bond yields eased as hope blossomed that inflation would cool and get the Fed to take it easier on interest rates. Then, last month’s torrent of strong data dashed those expectations and sent stocks falling and bond yields jumping.

On Wall Street Tuesday, WW International, better known as WeightWatchers soared after saying it’s getting into the prescription weight loss business with the purchase of telehealth platform Sequence. WW will pay $106 million for Sequence, which served about 24,000 members across the U.S. as of February.

Shares of WW jumped 34.1%.

Stock markets abroad were mixed.

In Australia, the country’s central bank decided to raise its key rate by a quarter of a percentage point to 3.6%. It said that although global inflation remains high, inflation in Australia is starting to subside. The hike was expected.

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