Dow Jones falls 1,008 as interest rates stay high

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NEW YORK — The Dow Jones Industrial Average slumped more than 1,000 points as the stock market had its biggest skid in two months Friday after the head of the Federal Reserve dashed Wall Street’s hopes that it may soon ease up on high interest rates in its effort to tame inflation.

The S&P 500 lost 3.4%, its biggest drop since mid-June, after Jerome Powell said the Fed will likely need to keep interest rates high enough to slow the economy “for some time” in order to beat back the high inflation sweeping the country.

The Dow dropped 3% and the Nasdaq composite ended 3.9% lower, reflecting a broad sell-off led by technology stocks. Higher rates help corral inflation, but they also hurt asset prices.

Investors initially struggled to make out the meaning of Powell’s highly anticipated speech. Stocks fell at first, then erased nearly all their losses, and then turned decisively lower with all but five of the companies in the S&P 500 ending up in the red.

“He focused more on the Fed’s goals rather than the path,” said Jeffrey Kleintop, chief global investment strategist at Charles Schwab. “That left the market with less to grab onto in terms of the future path for policy.”

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

Powell acknowledged the increases will hurt U.S. households and businesses, in perhaps an unspoken nod to the potential for a recession. But he also said the pain would be far greater 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.

“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.”

The sell-off capped a week of choppy trading that left major indexes down 4% or more for the week.

All told, the S&P 500 fell 141.46 points to 4,057.66. The benchmark index is now down almost 15% for the year.

The Dow lost 1,008.38 points to close at 32,283.40. The last time the blue-chip average had a 1,000-point drop was in May.

The Nasdaq slid 497.56 points to 12,141.71, its biggest drop since June.

The Russell 2000 index of smaller companies fell 64.81 points, or 3.3%, to finish at 1,899.83.

Investors got a fresh set of warnings from companies about the persistent impact from inflation and a slowing economy. Computer maker Dell slumped 13.5% after it said weaker demand will hurt revenue. Chipmaker Marvell Technology fell 8.9% after giving investors a disappointing earnings forecast.