Stocks are falling in a frenetic
Friday after the head of the Federal Reserve pushed back on Wall Street’s hopes
that it may let off the brakes for the economy.

The S&P 500 was 1.5% lower
after Jerome Powell said the Fed will need to keep interest rates high enough
to slow the economy “for some time” in order to declare victory over
the high inflation sweeping the country. Shorter-term Treasury yields climbed
as traders built up bets for the Fed to stay aggressive about its rate hikes.

Also Read | Jackson Hole Symposium 2022: 5 key takeaways from Jerome Powell’s speech

The Dow Jones Industrial Average
was down 404 points, or 1.2%, at 32,887, as of 10:54 a.m. Eastern time, and the
Nasdaq composite was 1.9% lower. Indexes went on a round trip to get there as
investors struggled to make out the meaning of Powell’s speech. Stocks
initially fell, then erased nearly all the losses and then turned lower again.

Powell’s highly anticipated speech
followed up on several other Fed officials, who have been pushing back on
speculation the Fed may ease up on its interest-rate hikes. The increases help
corral inflation but also hurt the economy and investment prices.

Also Read | How Paul Volcker tamed inflation with two recessions in 1980s

Powell acknowledged the rate hikes
will hurt the job market and U.S. households, in perhaps an unspoken nod to the
potential of the increases causing a recession. But he also said the pain would
be worse if inflation were allowed to fester and that “we must keep at it
until the job is done.”

He was speaking at an annual
economic symposium in Jackson Hole, Wyoming, which has been the setting for
market-moving Fed speeches in the past.

Also Read | Dollar remains firm ahead of Jerome Powell’s Jackson Hole speech

“He basically said there will
be pain and that they won’t stop and can’t stop hiking until inflation moves a
lot lower,” said Brian Jacobsen, senior investment strategist at Allspring
Global Investments. “It was a mercifully short speech and to the point.
Powell didn’t really break new ground, which is good since Jackson Hole isn’t a
policy meeting.”

Expectations had built through the
week that Powell would try to to bat down recent talk about a “pivot”
by the Fed. Such speculation had helped stocks surge through the summer. Some
investors were even saying the Fed could cut interest rates later in 2023, as
pressures on the economy mount and the nation’s high inflation hopefully

Also Read | How investment and savings strategies changed in last 30 years

“The Fed could start thinking
about a pause in rate hikes, potentially for the end of the year,” Thomas
Costerg of Pictet said in a report. “However, it is still too early to
talk about rate cuts.”

Perhaps giving some hope to the
market for the future, Powell also said, “At some point, as the stance of
monetary policy tightens further, it likely will become appropriate to slow the
pace of increases.”

Also Read | Is it better to invest in real estate during surging inflation?

Analysts said Powell also seemed
to indicate expectations for future inflation aren’t taking off. If that were
to happen, it could cause a self-perpetuating cycle that worsens inflation.

A report Friday morning showed
that the Fed’s preferred gauge of inflation decelerated last month and wasn’t
as bad as many economists expected. It’s an encouraging signal, which may
embolden more of Wall Street to say that the worst of inflation has already
passed or will soon.

Also Read | How post-pandemic markets have behaved historically

Other data showed that incomes for
Americans rose less last month than expected, while consumer spending growth

Following the reports and Powell’s
comments, the yield on the 10-year Treasury rose to 3.04% from its 3.03% level
from late Thursday.

The two-year Treasury yield, which
more closely tracks expectations for the Fed’s actions, rose more. It climbed
to 3.43% from 3.37%.

Also Read | US inflation rate slips from 40-year peak | A timeline: 1930-2022

The Fed has already hiked its key
overnight interest rate four times this year in hopes of slowing the worst
inflation in decades, with most of the increases by more than the typical
margin. The hikes have already hurt the housing industry, where more expensive
mortgage rates have slowed activity. But the job market has remained strong,
helping to prop up the economy.

Also Read | The 2008 market crash: Inside the doomsday machine and a brief history

In the stock market, shares of
Ulta Beauty rose 1.4% after the retailer reported stronger profit for the
latest quarter than expected. Perhaps more importantly, it raised its forecast
for revenue and earnings for the full fiscal year. Other retailers have been
cutting their forecasts as high inflation squeezes their customers, particularly
lower-income ones.