Stocks and other financial markets in the United States were shaken Tuesday by the announcement made by Jerome Powell, Federal Reserve Chair, that interest rates would rise more than previously anticipated. He also opened the door to accelerating rate increases if the data warrants.
“Jay Powell made no concessions when it came down to the Fed’s first priority to get inflation under control and to go as far as that number requires,” stated Danni Hewson (head of financial analysis at U.K broker AJ Bell) in emailed remarks.
The main event was an increase in the policy sensitive 2-year Treasury Yield TMUBMUSD02Y at 5.040%. This jumped close to 12 basis points and topped the 5% mark for the first time since 2007. Yields and debt prices are opposite one another.
This move was made as fed-funds futures indicated that traders see more than 60% likelihood that policy makers will raise the benchmark interest rate by 50 base points, or half a percent, at the Fed’s March 22 meeting. According to , the CME FedWatch tool, this is an increase of around 34% and 9% respectively on Monday.
The dollar rose against major rivals due to the rise in the 2-year yield, bringing the ICE U.S. Dollar Index up by +0.12% 1.2% to its highest level since Jan. 6.
Gold fell due to higher yields and a stronger US dollar. Equities also fell with the Dow Jones Industrial Average DMIA losing 1.72% at 574.98 points or 1.6%. The S&P 500 SPX, -1.533% lost 1.5%, and the Nasdaq composite COMP, -1.25 lost 1.3%.