Stocks steadied on Wall Street after wavering between gains and losses in early trade amid concerns about inflation and whether rising interest rates will help or hinder the economy.
The S&P 500 rose 0.3 per cent in late trade, bouncing between a gain of 1 per cent and a loss of 1.3 per cent throughout the day. The Dow Jones Industrial Average is up 0.5 per cent and the Nasdaq has added 0.4 per cent. The Australian sharemarket is set for gains, with futures at 5.12am AEST pointing to a rise of 49 points, or 0.8 per cent, at the open. On Wednesday, the ASX slipped by 0.2 per cent.
The choppy trading follows a solid rally on Wall Street on Tuesday in what has been a turbulent period for the broader market, with daily and sometimes hourly swings from sharp gains to losses. The benchmark S&P 500 is currently in a bear market, which means it has dropped more than 20 per cent from its most recent high, which was in January. It has also fallen in 10 of the last 11 weeks, but is holding on to gains so far for this week.
Much of the loss has been tied to concerns about rising inflation and the Federal Reserve’s plan to aggressively raise interest rates in order to temper inflation’s impact on consumers and businesses.
“There have been some new hurdles put in front of us,” said Sylvia Jablonski, chief investment officer at Defiance ETFs. As a result, she said, many investors are “sitting on the sidelines.”
Federal Reserve Chair Jerome Powell underscored the Fed’s determination to raise interest rates high enough to slow inflation, a commitment that has fanned concerns that the central bank’s fight against surging prices could tip the economy into recession. Powell is addressing Congress this week, starting with the Senate Banking Committee on Wednesday.
“We’re not trying to provoke and don’t think that we will need to provoke a recession,” Powell said. “But we do think it’s absolutely essential that we restore price stability, really for the benefit of the labor market as much as anything else.”
Powell’s testimony comes a week after the Fed raised its benchmark interest rate by three quarters of a percentage point, its biggest hike in nearly three decades. With inflation worsening, the Fed’s policymakers also forecast a more accelerated pace of rate hikes this year and next than they had predicted three months ago, with its key rate reaching 3.8 per cent by the end of 2023. That would be its highest level in 15 years.
The Fed’s moves are happening as some discouraging signals have emerged about the economy, including sagging spending at retailers and soured consumer sentiment. The worries over inflation and interest rates have been worsened by a spike in energy and other key commodity prices following Russia’s invasion of Ukraine.
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