S&P 500 tumbles as Powell rules out rate cuts in 2023

© Reuters.

By Senad Karaahmetovic

U.S. stocks closed at session lows after Fed Chair Jerome Powell said that FOMC participants “don’t see rate cuts this year.”

Equities initially raced higher on the Fed's decision to increase rates by 25 basis points and the press conference. However, the direction reversed after Powell said that “the process of getting inflation back down to 2% has a long way to go and is likely to be bumpy.”

“Inflation has moderated somewhat since the middle of last year, but the strength of these recent readings indicates that inflation pressures continue to run high,” Powell added.

“We are committed to restoring price stability and all of the evidence says that the public has confidence that we will do so that will bring inflation down to 2% over time. It is important that we sustain that confidence with our actions, as well as our words,” he further noted.

Powell also told the media that the Fed is ready to hike again if it “needs to.”

“If we need to raise rates higher, we will,” Powell said in the press conference. “I think for now, though...we see the likelihood of credit tightening. We know that that can have an effect on the macro economy.”

The selloff accelerated following remarks pertaining to rate cuts. Powell said that “rate cuts are not in our base case,” which pushed risk assets sharply lower. Bitcoin is down 4% on the day.

Vital Knowledge analysts believe that Fed was “undoubtedly more dovish than anticipated just a couple of weeks ago and it seems like the first sign of employment and/or inflation breaking lower could spur an even more aggressive pivot.”

They urged the firm’s clients to continue focusing on the data and especially the March jobs and inflation reports that are due in April.

Wells Fargo economists believe that the ongoing banking crisis will lead to tighter credit conditions and ultimately mean that “the end of the current tightening cycle is likely coming into view.”

Nasdaq 100 closed 1.37% lower while Dow Jones Industrial Average dropped over 1.6%. Russell 2000 closed 2.5% lower to test 5-month lows.