All three major indices closed sharply on Friday after investors were spooked by comments from the Federal Reserve's James Bullard about interest rates.
Wall Street experienced a new day of red this Friday and closed its worst week since January. The worst hit was the Dow Jones industrials, which fell 1.5% after a senior Federal Reserve official said inflation was stronger than they had anticipated and that the central bank will hold several meetings to find out how to reduce your massive bond purchases.
All the indices returned negative numbers. The S&P 500 fell 1.31% and the Nasdaq, made up mainly of technology firms, fell about 0.9%, withstanding the downtrend a little better.
The official is James Bullard, head of the Saint Louis Fed and one of the most influential economists in the United States. Specifically, he said he was among the seven executives who expected rate increases from next year to contain inflation. In principle, it would be at the end of 2022.
The Dow and S&P 500, which started the week at record highs, tumbled after Bullard said he was among seven officials who saw the possibility of raising rates starting next year to contain inflation.
The inflation, and how the US central bank's address as the country emerges from the pandemic, had been at the center of the mind of investors in the run-up to the monetary policy meeting of the Fed this week.
P or so, from that on Wednesday, the Fed projected increases in interest rates earlier than expected and noted that it was getting to the point where it could start talking about reducing their massive stimulus rather than just thinking in it - the major Wall Street indices have been under pressure.
Meanwhile, the CBOE volatility index, Wall Street's indicator of fear, soared to 20.70 points, the highest since May 21, after Bullard's remarks. "The comment has raised concerns about inflation; people wonder how transitory it really will be; most data show increases of more than 3% towards the end of this year," said Sam Stovall, strategist at CFRA Research.
Since the beginning of the week, the New York Plaza has been hit hard after the Fed unexpectedly signaled that it could start to reduce its stimulus earlier than expected, Leave the S&P500 on track and finish winning in three weeks. The impact on tech stocks has been minimal as the Federal Reserve predicts that the economy will grow 7% faster than expected this year.
Following its two-day meeting, the Fed's Federal Open Market Committee explained in a statement that progress in the vaccination campaign in the United States, which has reduced the spread of COVID- 19, and the "strong political support" of the Government, the indicators of economic activity and employment "have strengthened."
Along with the change in the growth projection, which in March had been estimated at 6.5%, the decision was announced to leave interest rates unchanged for now, close to 0%, despite the rise in inflation. In this way, the reference rate remains at the same level it has been at since March 2020, when the US central bank implemented two rate cuts due to the results of the COVID-19 pandemic on the US economy.
In its analysis, the FOMC acknowledged that inflation "has increased" but attributed it "largely to transitory factors." This reading coincides with that of the US Secretary of the Treasury, Janet Yellen, who precisely insisted on Wednesday that the rise in prices in the country is "temporary" and responds to "transitory" factors, especially associated with the reactivation of the economy after the hit by the coronavirus pandemic.
Fed President Jerome Powell has also repeatedly considered this price rebound to be transitory and responds to reopening economic activity as COVID-19 cases continue their sustained decline in the US. The US job market created 559,000 non-farm jobs last May. On its side, unemployment fell to 5.8%, thus maintaining the job recovery that began a year ago, after the pandemic destroyed almost 21 million jobs.