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Dow falls 299 points after Powell signals Fed will keep raising rates to contain inflation

  • New Federal Reserve Chair Jerome Powell addressed Congress, detailing the central bank's outlook for monetary policy and economic growth for the coming years.
  • "We've seen some data that in my case will add some confidence to my view that inflation is moving up to target," Powell told lawmakers.
  • U.S. Treasury yields rose sharply during the testimony, with the benchmark 10-year Treasury note adding 5 basis points to hit 2.915 percent.

U.S. stocks fell for the first time in four days Tuesday after comments from new Federal Reserve Chair Jerome Powell sent rates higher.

The new chair signaled the central bank could hike rates more than three times this year in an effort to keep the economy from overheating, sparking anxiety among equity traders.

The Dow Jones industrial average fell 299.24 points Tuesday to close at 25,410.03, with Disney and Home Depot weighing down the 30-stock index. The S&P 500 fell 1.27 percent to finish at 2,744.28 as real estate, consumer discretionaries and telecommunications pulled the broader market lower.

The Dow and S&P remain 4.5 percent and 4.4 percent off their all-time highs respectively.

The Nasdaq composite fell 1.23 percent to close at 7,330.35 amid declines in Facebook, Amazon, Apple, Netflix and Google-parent Alphabet.

Jerome Powell addressed Congress on Tuesday, detailing the central bank's outlook for monetary policy and economic growth for the coming years. Asked about rate hikes in 2018, the Fed Chair signaled that the option for more than three increases remains open.

"We've seen some data that in my case will add some confidence to my view that inflation is moving up to target," Powell told lawmakers. "We've also seen continued strength around the globe. And we've seen fiscal policy become more stimulative. So I think each of us is going to be taking the developments since the December meeting."

Powell said individual Fed members will be crafting new projections at the central bank's meeting in March, which would be influenced by federal government's ambitious fiscal policies including tax cuts.

Jerome Powell, Chairman of the Federal Reserve Board, testifies during a House Financial Services Committee hearing on Capitol Hill in Washington, DC, February 27, 2018.
Saul Loeb | AFP | Getty Images
Jerome Powell, Chairman of the Federal Reserve Board, testifies during a House Financial Services Committee hearing on Capitol Hill in Washington, DC, February 27, 2018.

"I think [the stock] reaction to his comments about slightly strong growth and that the Fed was more likely to raise rates more in 2018 than investors had anticipated," said Kate Warne, investment strategist at Edward Jones. "You saw some reaction, but not a dramatic one. Investors have become increasingly comfortable that if rates continue to rise slowly in response to economic growth, that's a good thing."

Warne added that despite expected hikes, the Fed's monetary policy remains largely accommodative.

U.S. Treasury yields rose sharply following Powell's optimistic comments, with the benchmark 10-year Treasury note adding 5 basis points to hit 2.915 percent.

A sharp rise in yields earlier this month sparked a widespread sell-off in equities, sending the Dow and S&P 500 into correction territory before partially recovering. The yield on the 10-year note notched a four-year high of 2.95 percent last week, just below the key psychological level of 3 percent.

Despite the recent market volatility, Powell's prepared comments and question-and-answer testimony appeared to downplay the significance of the turbulence.

"He's very optimistic about the economy and he's optimistic they can hit the inflation target," said Ward McCarthy, chief financial economist at Jefferies. "He's going to continue to raise rates and the balance sheet's going to continue to shrink … a measly 1,500 point decline in the Dow is not going to dissuade him."

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Monday, Aug. 21, 2017.
Michael Nagle | Bloomberg | Getty Images
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Monday, Aug. 21, 2017.

In corporate news, Macy's stock surged nearly 3.5 percent after the company reported better-than-expected earnings results. In an interview with CNBC, CEO Jeff Gennette said same-store sales were up 3 percent in January.

Meanwhile, NBCUniversal-parent Comcast announced a cash offer Tuesday to buy European pay-TV group Sky for 22.1 billion pounds ($31 billion). Shares of both Comcast and Disney (which is also seeking ownership of Sky) fell Tuesday, down 7.3 percent and 4.9 percent respectively.

Meanwhile, deal talks between Walgreens and AmerisourceBergen have stalled without an agreement, sources tell CNBC.

Oil fell Tuesday as a stronger dollar prompted investors to take profits from a two-week rally ahead of weekly data that analysts have forecast will indicate an uptick crude inventories.

U.S. crude oil futures settled at $63.01 per barrel, down 90 cents, or 1.41 percent.

Stocks fell despite some upbeat economic news on the housing and consumer outlook.

U.S. home prices increased 6.3 percent compared to December of 2016, according to the S&P CoreLogic Case-Shiller national home prices index. The rally in prices comes as demand skyrockets against record low supply.

U.S. consumer confidencetopped 130.8 in February, a 17-year high. Feelings about short-term economic prospects accelerated in January after declining sharply the month before. The index takes into account Americans' views of current economic conditions and their expectations for the next six months.

Looking at markets overseas, both stocks in Europe and Asia were mixed or came under slight pressure on Tuesday; the Stoxx 600 index fell 0.18 percent.