FILE - A trader looks over his cell phone outside the New York Stock Exchange, Wednesday, Sept. 14, 2022, in the financial district of Manhattan in New York. (AP Photo/Mary Altaffer, File)
NEW YORK (AP) – Stocks are drifting after Federal Reserve Chair Jerome Powell said progress is being made in the fight against inflation even after a stunningly strong jobs report last week, though a long battle remains.
The S&P 500 was moving between small gains and losses in afternoon trading, after spiking briefly to a big gain and then losing it all as Powell made his remarks. The Dow Jones Industrial Average was down 112 points, or 0.3%, at 33,777, as of 2:06 p.m. Eastern time, while the Nasdaq composite was 0.3% higher.
Stocks have pulled back recently, shaving off some of their strong start to the year. The market had rallied powerfully on hopes that the economy could avoid a severe recession and that cooling inflation could get the Federal Reserve to take it easier on interest rates.
But a joltingly strong jobs report on Friday raised concerns about upward pressure on inflation. That in turn triggered worries the Fed may end up keeping rates higher for longer, as it’s been warning. Higher rates can drive down inflation but also hurt the economy and investment prices.
Powell said Tuesday at the Economic Club of Washington, D.C., that the market’s big moves since the jobs report have gotten it closer to in sync with the Fed’s thinking. Not only did stocks fall, Wall Street raised its forecast for how high the Fed will take rates by the summer. Investors also reduced bets that the Fed may cut rates later this year. Rate cuts can goose the economy and act like steroids for markets.
“We have a significant road ahead to get inflation down to 2%,” which is the Fed’s target, Powell said. “There’s been an expectation that it will go away quickly and painlessly. I don’t think that’s at all guaranteed.”
Powell said that if more jobs reports or inflation data come in way above expectations, the Fed may ultimately raise rates even higher than it’s been saying.
After pulling its key overnight rate all the way to a range of 4.50% to 4.75%, up from virtually zero a year ago, the Fed has said it envisions a couple more increases before holding steady through the end of the year.
Treasury yields have zoomed higher in recent days on expectations for a firmer Fed. They were holding relatively steady Tuesday
The yield on the 10-year Treasury, which helps set rates for mortgages and other important loans, slipped to 3.66% from 3.64% late Monday. The two-year yield, which moves more on expectations for the Fed, held steady at 4.47%. It remains near its highest level in three months.
A relatively lackluster earnings reporting season on Wall Street is also rolling on.
DuPont climbed 5.5% after reporting stronger profit for the latest quarter than analysts expected. Activision Blizzard gained 4.8% after the video-game company reported stronger revenue and profit for its latest quarter than expected.
On the losing end was Carrier Global, which dropped 4.9% despite matching analysts’ expectations for profits in the latest quarter. It also gave a forecast for revenue this upcoming year that was slightly above Wall Street’s expectations. Analysts pointed to a deceleration in orders.
In stock markets overseas, Sydney’s S&P-ASX 200 lost 0.5% after the Reserve Bank of Australia raised its benchmark rate by 0.25 percentage points to 3.35%. It said more hikes are planned to lower inflation that is at a 33-year high of 7.8% to its target range of 2% to 3%.
In Japan, the Nikkei 225 slipped less than 0.1% after the government reported wages rose 4.8% over a year earlier in December. That was close to a three-decade high as workers press for higher pay to keep pace with inflation.
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AP Business Writers Joe McDonald and Matt Ott contributed.
