Dow futures fell by some 500 points before the market opened on Thursday as Wall Street appears poised to give up some of the gains made after Fed Chair Jerome Powell announced sharp interest rate hikes to combat inflation.
S&P 500 futures fell by some 2% while Nasdaq futures were in the red by 2.3%. Hours earlier, all three indexes were in green territory.
The Federal Reserve on Wednesday approved the largest hike to its benchmark interest rate since 1994 on Wednesday — increasing it by 75 basis points, or 0.75 of a percentage point.
The hike was in line with revised expectations after last week’s release of the Consumer Price Index for May. The federal data showed inflation accelerated to a higher-than-expected 8.6% last month, the sharpest rate since December 1981.
“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures,” the FOMC said in a statement.
Powell reiterated that the central bank was “moving expeditiously” to address inflation and acknowledged the historic nature of Wednesday’s increase.
“Inflation has obviously surprised to the upside over the past year — and further surprises could be in store,” Powell admitted in a press conference after the Fed’s meeting on Wednesday.
“We therefore will need to be nimble in responding to incoming data and the evolving outlook.”
“Clearly, today’s 75 basis point increase is an unusually large one and I do not expect moves of this size to be common,” Powell added. “From the perspective of today, either a 50-basis point or a 75-basis point increase seems most likely at our next meeting.”
Fed officials said they expect the benchmark rate to hit a range of 3.25% to 3.5% by the end of this year. That would mark the highest level since 2008.
Additional reporting by Thomas Barrabi