US Federal Reserve Board Chairman Jerome Powell faced a rocky day on Tuesday as stocks plunged amid fears of a hot economy and sticky inflation. Investors readjusted their rate cut expectations ahead of the latest Federal Open Market Committee (FOMC) meeting, causing the benchmark S&P 500 index to drop over 1%.
The latest labor cost data added to concerns about inflation, with the Employee Cost Index rising 1.2% against a 1% consensus. This data puts pressure on the Fed’s ability to cut interest rates this year, with futures markets now expecting only one rate cut in December.
“The policy statement and Chair Powell’s comments in the press conference will reiterate the Fed’s resolve to get inflation back to their 2% target,” said Bill Adams, chief economist for Comerica Bank. “Barring a major crisis, a rate cut looks off the table before September.”
The stock decline on Tuesday deepened April’s losses, snapping a five-month streak of gains. Shares in McDonald’s dropped as much as 3.8% after its earnings report missed estimates, while investors awaited Amazon’s quarterly results after the closing bell.
Ceasefire talks between Israel and Hamas also impacted the markets, sending Brent crude falling 2.6% throughout the day.
In commodities, bonds, and crypto, oil prices fell, gold slumped, the 10-year Treasury yield jumped, and Bitcoin decreased. The overall market volatility reflects the uncertainty surrounding the Fed’s upcoming policy decisions and the broader economic landscape.
Investors will be closely watching for updates from the Fed after the FOMC meeting wraps up on Wednesday, as they seek clarity on the central bank’s plans to address inflation and interest rates in the coming months.
