Stocks slip as recession risk acknowledged
U.S. stocks tipped into losing territory as the head of the Federal Reserve reiterated his commitment to combating inflation while acknowledging the potential for the U.S. economy to fall into a recession.
The trading day took off as Fed Chair Jerome Powell began his first session of congressional testimony on Wednesday, focusing on the central bank’s tightening monetary policy. Last week, the Fed introduced a three-quarters of a percentage point jump, its largest increase since 1994.
After clinging to the slightest of gains during afternoon trading, Wall Street gave up on an attempted comeback and the Dow Jones industrial average ended the session down 47.12 points, or nearly 0.2 percent, to close at 30,483.13. The S&P 500 and techheavy Nasdaq also fell modestly, by 0.1 percent and 0.2 percent, respectively.
Oil prices sank after the White House signaled a new plan to cool soaring fuel prices, which have been hovering near a national average of $5 a gallon. On Wednesday, President Joe Biden urged Congress to suspend the federal gas tax of 18.3 cents per gallon for three months. He also called on states to suspend their own gas taxes and ask oil companies to lower prices.
Brent crude, the international benchmark, dropped 0.8 percent to near $110 a barrel Wednesday. West Texas Intermediate crude, the U.S. benchmark, dropped 3.8 percent to $105 a barrel.
Powell said during the testimony that because oil prices are set globally, “there’s really not anything” the Fed can do to bring relief at the pump.
While stock losses were modest Wednesday, experts said that Wall Street’s performance should not be taken as a turning sign toward optimism. “I would expect some investors to use yesterday’s rally as an excuse to sell equities,” said Kristina Hooper, strategist at Invesco. The negative mood will persist until the Fed shows the possibility of a less aggressive tightening policy, which Hooper expected to see in September.
Nicole Tanenbaum, Chief Investment Strategist at Chequers Financial Management, said that key economic indicators signaled a slowing economy.
Attempts to bring down rapidly rising home prices, which are increasingly unaffordable for many Americans, ranks as a key concern for central bank officials. During the coronavirus pandemic, low mortgage rates fueled demand for housing, pushing home prices skyward. Raising rates cools demand because it makes borrowing more expensive.
Compared to a year ago, a National Association of Home Builders survey shows a 32 percent decrease in prospective home buyer traffic. And 11 percent fewer single family houses were sold in June 2022, compared with the year prior.