Wall Street saw a big meltdown when Dow 30 index plummeted over 1000 points and Nasdaq Composite ended the day’s session 4% lower. The market pain was as a result of the warning Federal Reserve Chair Jerome Powell gave to households and businesses during his Jackson Hole Economic Policy Symposium 2022 speech.

“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain,” said Powell during the Jackson Hole Economic Policy Symposium 2022 speech.

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The slump in stock prices in the US stock market came after Federal Reserve Chair Jerome Powell during his Jackson Hole Economic Policy Symposium 2022 remarks. Powell in his Jackson Hole said that Fed will keep raising interest rates to bring inflation down.

Without beating around the bush, Powell kept referring to inflation as the sole reason for hurting the economy. Inflation was mentioned almost 44 times in his speech.

“US Fed statements post the Jackson Hole symposium indicated the central bank’s strong commitment towards controlling inflation over growth. In cues for major central banks across the world, Fed Chair Jerome Powell said that inflation is likely to remain higher for longer period and thus require aggressive stance. This is likely to be negative for equity markets. The impact was clearly visible in US markets which fell more than 3%,” says Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services.

US stocks finished lower, with S&P 500 clocking its worst daily performance since June and its second straight weekly loss. As investors realized that a Federal Reserve pivot is not a possibility in the near future, the stocks tanked and ended the week lower.

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“Comments from FED chair disappointed and would shift from raising rates to lowering sometime next year. Friday’s selloff capped off two consecutive weeks of losses for major stock indexes and largely wiped out the market’s gains since late July. The Federal Reserve will continue raising interest rates and hold them at a higher level until it is confident inflation is under control and at the 2% level. Slackness in the rate of investment, spending and hiring will be the unfortunate costs of reducing inflation,” says Mitul Shah- Head of Research at Reliance securities.

Jobs data and US CPI numbers are expected soon and could throw up a major reversal for the stocks if the tide has to shift upwards. The September FOMC will, therefore, become an important event to watch out for.

The belief that there will be more rate increases does not change despite the better-than-expected CPI reading in July. The Fed is more likely to raise its policy rate by 50 basis points in September as opposed to another significant 75 basis point increase given the positive tone of the July inflation statistics.

The target range for the federal funds rate will be 3.50–3.75% at year’s end, according to BofA’s projection, which is still calling for 50bp increases in September and November, followed by a 25bp increase in December. But, till the time, Fed continues to hike rates and a negative impact is visible on the economy, investors could be rushing out of stocks and bonds alike.

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