Wall St falls after Powell warns of tight policy, slow growth

© Reuters. FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., August 15, 2022. REUTERS/Brendan McDermid/File Photo

By Bansari Mayur Kamdar and Devik Jain

(Reuters) -Wall Street fell sharply on Friday after Federal Reserve Chief Jerome Powell's comments suggested the central bank will keep raising interest rates to tame inflation.

The U.S. economy will need tight monetary policy "for some time" before inflation is under control, a fact that means slower growth, a weaker job market and "some pain" for households and businesses, said Powell in prepared remarks for a speech to the Jackson Hole central banking conference in Wyoming.

People should not expect the Fed to dial back quickly until the inflation problem is fixed, the central bank chair added.

"The Fed wants to talk tough because they don't want inflation to become ingrained in the economy," said Brent Schutte, chief investment officer at Northwestern (NASDAQ:NWE) Mutual Wealth Management Co.

"He focused on not loosening policy too early but he didn't mention going any further on a hawkish side."

Weighing on megacap growth and technology stocks, the U.S. two-year Treasury yields briefly popped to their highest levels since October 2007 before stabilizing near two-month highs. [US/]

High-growth and technology stocks such as Nvidia (NASDAQ:NVDA) Corp and Amazon.com Inc (NASDAQ:AMZN) declined 4.7% and 2.4% after posting sharp gains in the previous session.

Economy-sensitive banks fell 1.5%.

Wall Street has tumbled since the start of this year as investors priced in the expectation of aggressive interest rate hikes and a slowing economy.

However, it has recovered strongly since June, with the S&P 500 regaining nearly half its losses for the year on the back of stronger-than-expected quarterly earnings and hopes that inflation has peaked.

Traders were still divided between a 75 basis point and a 50 basis point hike by the Fed, while economists see the central bank lifting rates by 50 bps at its meeting next month.

At 10:45 a.m. ET, the Dow Jones Industrial Average was down 430.81 points, or 1.29%, at 32,860.97, the S&P 500 was down 67.48 points, or 1.61%, at 4,131.64, and the Nasdaq Composite was down 248.70 points, or 1.97%, at 12,390.56.

Data earlier showed U.S. consumer spending barely rose in July, but inflation eased considerably, which could give the Fed room to scale back its aggressive interest rate increases.

Dell Technologies (NYSE:DELL) Inc fell 8.8% as it joined rivals in predicting a slowdown as runaway inflation and the darkening economic outlook prompt consumers and businesses to tighten their purse strings.

U.S.-listed shares of Chinese companies like Alibaba (NYSE:BABA) and JD (NASDAQ:JD).com rose about 0.3% each after the U.S. audit regulator said it has signed an agreement with Chinese regulators.

Declining issues outnumbered advancers for a 4.82-to-1 ratio on the NYSE and a 3.80-to-1 ratio on the Nasdaq.

The S&P index recorded three new 52-week highs and 30 new lows, while the Nasdaq recorded 23 new highs and 63 new lows.