Fed official’s remarks rattle investors

Markets plunge after question on need for interest rate cuts

NEW YORK — U.S. stocks tumbled Thursday after a Federal Reserve official raised the possibility of delivering none of the cuts to interest rates this year that Wall Street has been banking on, if inflation worsens.

The S&P 500 dropped 1.2 percent for its worst day in seven weeks. Earlier in the day, a gain of nearly 1 percent had brought it to the cusp of its record set last week.

The Dow Jones Industrial Average swung 530 points lower, or 1.4 percent, after reversing a rise of nearly 300 points. The Nasdaq composite fell 1.4 percent.

Financial markets were already on edge as traders made their final moves ahead of a jobs report on Friday that could itself shake the market. A lateday spurt for oil prices amid continued tensions in the Middle East threatened to add more pressure on inflation after oil’s strong gains this year. Treasury yields dropped in the bond market, which can be a signal of investors looking for safer harbors, and a measure of fear among U.S. stock investors leaped.

Stocks slumped after Minneapolis Fed President Neel Kashkari said he’s questioning the need to cut rates if so many areas of the economy look to be solid despite high interest rates.

He had penciled in two cuts to interest rates this year, “but if we continue to see inflation moving sideways, then that would make me question about whether we need to do those rate cuts at all.”

“There’s a lot of momentum in the economy right now.” Kashkari said in an interview with Pensions & Investments.

Kashkari’s hypothetical case, which he said depends on “a lot of ‘ifs,’” cuts at one of the main propellants that drove the U.S. stock market up more than 20 percent from November into March: the expectation for several cuts to interest rates.

But several recent updates on the economy have come in hotter than expected, beyond some disappointingly high inflation reports at the start of the year that could be seen as temporary blips. A report this week showing a surprise return to growth for U.S. manufacturing raised concerns in particular.

In the bond market, the yield on the 10-year Treasury fell to 4.30 percent from 4.35 percent late Wednesday. The two-year yield, which moves more on expectations for the Fed, slumped to 4.64 percent from 4.67 percent.