NATIONAL NEWS

Dow tumbles 1,160 points in worst trading day since June 2020

May 18, 2022, 2:55 PM | Updated: Jun 8, 2022, 3:15 pm

Mandatory Credit: Photo by JUSTIN LANE/EPA-EFE/Shutterstock (12924457h)
A screen shows a press conf...

Mandatory Credit: Photo by JUSTIN LANE/EPA-EFE/Shutterstock (12924457h) A screen shows a press conference with Jerome Powell, the Chair of the Federal Reserve of the United States, following news about the Fed's decision to raise interest rates by half a percentage point on the floor of the New York Stock Exchange in New York, New York, USA, on 04 May 2022. New York Stock Exchange Fed Announcement, USA - 04 May 2022

(12924457h)

(CNN) — The old joke goes like this: Two friends are at a resort and one says, “The food here is really terrible.” The other replies, “And the portions are so small!” Today, it’s investors who dislike the taste of the Federal Reserve’s interest rate hikes — but seemingly want more anyway.

Markets have plummeted over the past month as the Federal Reserve telegraphed that it would regularly hike interest rates by half a percentage point for the foreseeable future to combat persistent inflation. On Wednesday, the Dow shed more than 1164 points, or 3.6%, its biggest loss since 2020. The broader market lost 4%, putting the S&P 500 on the precipice of bear market territory. The Nasdaq Composite lost 4.73%.

Now, investors are asking for more. They’re calling for a three-quarter-point rate hike at the conclusion of the Fed’s June meeting, despite Fed Chair Jerome Powell’s assurances that an increase that high isn’t on the table.

Bank of America analysts wrote in a note that they fear there will soon be a wage-price spiral in the US ​​because of risks that “the Fed hikes too little.” The current market reaction, they said, suggests that “investors see the Fed as moving too slowly on the inflation fight: a 75 [basis point] hike might have been feared but it appears it would have been preferred.”

Nomura Securities has predicted that the central bank will hike the fed funds rate by three-quarters of a point in June and July after the half-point rise in May.

“We recognize Fedspeak has not outright endorsed a 75 basis point hike yet, but in this high inflation regime we believe the nature of Fed forward guidance has changed — it has become more data dependent and nimble,” said Rob Subbaraman, Nomura head of global markets research, in a note.

The Fed could hike rates to 5% by the time it ends the current bout of tightening, ​​Deutsche Bank’s chief economist said. That would be the highest level since 2006.

Fed-funds futures traders see a 9% likelihood that the Federal Reserve will raise its main policy rate target by three-quarters of a point in June, to between 1.5% and 1.75%, according to the CME FedWatch Tool.

St. Louis Fed president James Bullard has stoked the flames for a potential three-quarter-point hike this year in public speeches and Federal Reserve Bank of Cleveland President Loretta Mester told Japan’s The Nikkei that a 0.75 percentage point hike could not be ruled out later this year in an interview Monday.

So why are markets fighting the Fed chair’s assurances that a larger hike won’t come in June — and hurting themselves by predicting it will?

“When a Fed official suggests a 50 basis points hike, markets immediately start trying to price in 75 basis point hikes,” said Jamie Cox, Managing Partner for Harris Financial Group. “It’s madness really.”

The Dow has fallen 5,095 points, or 14% in 2022. The S&P 500 has dropped over 18% and the Nasdaq Composite has lost about 28%.

“Powell tried to take the 75 basis point hike off of the table at the last press conference,” said David Lebovitz, a global market strategist at J.P. Morgan Asset Management.

But the following week, the Consumer Price Index, a key measure of inflation, shot up 8.3% for the year. The measure was lower than March’s 8.5% increase, but higher than the 8.1% increase economists expected.

The issues between markets and the Fed may have less to do with an eye toward self-flagellation and more to do with a growing mistrust of the institution. The old-time mantra of “don’t fight the Fed” has morphed into “don’t believe the Fed.”

“People start to lose faith in the idea that the Fed really does have its arms around inflation,” said Lebovitz. “It’s all about getting a grip on what the Fed is going to do and unfortunately, given the lack of clear guidance from them, and an inflation report that surprised to the upside, investors are a little bit uncomfortable.”

Even former Fed Chair Ben Bernanke seeded some doubt this week when he broke the unspoken edict amongst former Fed chairs to not speak ill of their successors. The Fed made a mistake in delaying their decision to raise rates, he said during an interview on CNBC’s Squawk Box Monday.

“And I think they agree it was a mistake.”

The-CNN-Wire
™ & © 2022 Cable News Network, Inc., a WarnerMedia Company. All rights reserved.

KSL 5 TV Live

National News

Utah Gov. Spencer Cox, left, and President Joe Biden toast before Biden speaks to members of the Na...

Darlene Superville, The Associated Press

Biden and Utah’s governor call for less bitterness and more bipartisanship

President Joe Biden and Utah Gov. Spencer Cox disagree on many issues but they were united Saturday in calling for less bitterness in politics and more bipartisanship.

3 hours ago

Sandra Young went missing from the Portland metro area more than five decades ago. (Oregon State Po...

Dalia Faheid, CNN

Remains of Oregon teenager are identified 50 years later after someone uploaded their DNA into genealogy site

The remains of a Portland, Oregon, teenager who vanished in the late 1960s have been identified through advanced DNA testing more than 50 years after she went missing, authorities said

4 hours ago

FILE - The company logo hangs over the door to an AT&T store Thursday, Feb. 22, 2024, in Denver...

Associated Press

AT&T will give $5 to customers hit by cellphone network outage

AT&T says it will give affected customers $5 each to compensate for last week's cellphone network outage that left many without service for hours.

5 hours ago

Kathy Brandel and Ralph Hendry, from Virginia, were spending the winter cruising the Eastern Caribb...

Sharif Paget, Chris Boyette and Polo Sandoval, CNN

2 Americans believed dead after yacht allegedly hijacked in Grenada

The family of two Americans who may have been killed after prison escapees allegedly hijacked their yacht in Granada are clinging to hope the couple might be found alive.

7 hours ago

A paddle boarder tows an inflatable unicorn on a temporary lake in Death Valley on Thursday, Feb. 2...

Ty O'Neil, John Locher and Stephanie Dazio, The Associated Press

Kayakers paddle in Death Valley after rains replenish lake in one of Earth’s driest spots

Kayakers have been paddling in one of the driest places on Earth after a series of record rainstorms battered California’s Death Valley and replenished Lake Manly.

7 hours ago

Kingsley Ben-Adir, izquierda, protagonista de "Bob Marley: One Love" posa con el hijo de Marley, Zi...

Jonathan Landrum, Jr., The Associated Press

‘One Love’ receives more love at the box office, claiming No. 1 spot for second straight week

For a second straight week, biopic “ Bob Marley: One Love ” continues to exceed expectations by claiming the No. 1 spot at the box office, overcoming two debut films and Sony's “Madame Web” that's still producing subpar numbers.

9 hours ago

Sponsored Articles

Modern chandelier hanging from a white slanted ceiling with windows in the backgruond...

Lighting Design

Light Up Your Home With These Top Lighting Trends for 2024

Check out the latest lighting design trends for 2024 and tips on how you can incorporate them into your home.

Technician woman fixing hardware of desktop computer. Close up....

PC Laptops

Tips for Hassle-Free Computer Repairs

Experiencing a glitch in your computer can be frustrating, but with these tips you can have your computer repaired without the stress.

Close up of finger on keyboard button with number 11 logo...

PC Laptops

7 Reasons Why You Should Upgrade Your Laptop to Windows 11

Explore the benefits of upgrading to Windows 11 for a smoother, more secure, and feature-packed computing experience.

Stylish room interior with beautiful Christmas tree and decorative fireplace...

Lighting Design

Create a Festive Home with Our Easy-to-Follow Holiday Prep Guide

Get ready for festive celebrations! Discover expert tips to prepare your home for the holidays, creating a warm and welcoming atmosphere for unforgettable moments.

Battery low message on mobile device screen. Internet and technology concept...

PC Laptops

9 Tips to Get More Power Out of Your Laptop Battery

Get more power out of your laptop battery and help it last longer by implementing some of these tips from our guide.

Users display warnings about the use of artificial intelligence (AI), access to malicious software ...

Les Olson

How to Stay Safe from Cybersecurity Threats

Read our tips for reading for how to respond to rising cybersecurity threats in 2023 and beyond to keep yourself and your company safe.

Dow tumbles 1,160 points in worst trading day since June 2020