Stocks drift after Fed leads long path to inflation

NEW YORK (AP) — Stocks zigzag on Wall Street on Tuesday after the Federal Reserve chief signaled that last week’s surprisingly strong jobs report is unlikely to change if interest rates move on their own, as some investors had feared.

The S&P 500 was up 0.5% in afternoon trade after comments from Fed Chair Jerome Powell sent stocks swinging from losses to big gains and then back and forth a few times. The Dow Jones Industrial Average was up 50 points, or 0.2%, to 33,942 as of 2:16 p.m. Eastern time, while the Nasdaq Composite was up 0.9%.

High inflation and how high the Fed will charge rates to fight it has been at the center of Wall Street’s wild moves for more than a year. Powell said Tuesday progress on inflation is finally being made, although a long battle ahead.

That mirrored similar comments he made last week after the Fed’s latest rate hike. But that was before a staggering jobs report on Friday showed US employers added a third of a million more jobs than expected last month.

This raised concerns about upward pressure on inflation and fears that the Fed may end up keeping rates high for longer, as it has warned. Higher interest rates can lower inflation, but they can also hurt the economy and asset prices.

But Powell said Tuesday at the Economic Club of Washington, DC that the market’s big moves since the jobs report have brought him closer to the Fed’s mindset. Not only did stocks fall, Wall Street also raised its forecast of how high the Fed will hike interest rates through the summer.

Investors also reduced bets that the Fed could cut rates later this year. Rate cuts can hurt the economy and act like steroids for the markets.

“We have a significant path ahead of us to bring inflation down to 2%,” which is the Fed’s goal, Powell said on Tuesday. “It was expected to go away quickly and painlessly. I don’t think that’s guaranteed at all.”

Powell also said the Fed could potentially raise rates even more if more jobs reports or inflation data come in well above expectations.

After raising its key federal funds rate to a range of 4.50% to 4.75% from virtually zero a year ago, the Fed said it intended a few more hikes before remaining stable through the end of the year.

Treasury yields have risen in recent days on expectations of a firmer Fed. They were relatively stable on Tuesday

The yield on the 10-year Treasury bond, which helps set interest rates on mortgages and other major loans, rose to 3.66% from 3.64% late Monday. The two-year yield, which is in line with expectations for the Fed, fell to 4.46% from 4.47%. It remains near its highest level in three months.

Wall Street is also entering a relatively lackluster earnings season.

DuPont rose 6.7% after reporting stronger earnings than analysts had expected for the most recent quarter. Activision Blizzard gained 5.1% after the video game company reported higher-than-expected sales and earnings for its most recent quarter.

On the negative side was Carrier Global, which fell 3.7% despite matching analyst earnings expectations last quarter. It also gave a sales forecast for the coming year that came in slightly ahead of Wall Street’s expectations. Analysts pointed to a slowdown in orders.

In overseas equity markets, Sydney’s S&P-ASX 200 lost 0.5% after the Reserve Bank of Australia hiked interest rates by 0.25 percentage point to 3.35%. More rate hikes are planned to bring inflation, which is at a 33-year high of 7.8%, to its target range of 2% to 3%.

In Japan, the Nikkei 225 slipped less than 0.1% after the government reported wages rose 4.8% in December from a year earlier. That was near a three-decade high as workers push for higher wages to keep up with inflation.

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AP business writers Joe McDonald and Matt Ott contributed.

Stan Choe, The Associated Press

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