Wall Street stumbled on Tuesday, with the Dow Jones Industrial Average falling more than 600 points after Federal Reserve Chairman Jerome Powell said he was considering withdrawing support for the economy at an even faster pace.
The Fed chief’s comments come amid already growing investor concerns about the omicron variant of the coronavirus that triggered the biggest market sale this year, on Black Friday.
All three major averages fell to the lowest session on Tuesday after Powell told the Senate Committee on Banking, Housing and Urban Affairs that in light of a “very strong” economy, “it is therefore appropriate in my view to consider ending the downsizing of our purchase of assets … maybe a few months before. “
The Federal Open Market Committee, the central bank̵[ads1]7;s political arm, will meet next time on 14-15. December. Following the group’s last meeting, Powell announced that the Fed would begin downsizing its asset purchases in December. These purchases represent one of the central bank’s largest interventions made in the wake of the pandemic.
Since June 2020, the central bank has bought $ 120 billion in bonds – $ 80 billion in government bonds and $ 40 billion in mortgage-backed securities – each month to provide liquidity and keep the financial system afloat effectively. Powell said earlier this month that the Fed would reduce those purchases by about $ 15 billion a month, but noted that the bank was “prepared to adjust the pace of purchases if changes in the economic outlook dictate it.” He reiterated this sentiment on Tuesday, saying to lawmakers, “You will see our policies continue to adapt.”
Powell’s comments indicate a shift in the outlook for the Fed, which for several months has insisted that inflationary pressures are “temporary”. Powell acknowledged on Tuesday that it was time to “withdraw” that word, noting that the pressure on the supply side – freight and logistics spinners that have slowed global growth during the pandemic and pushed up the prices of everything from cars to groceries – had been greater than expected.
A faster slowdown could lead to an earlier discussion among Fed politicians about raising reference rates, which the central bank cut to almost zero in March last year when the pandemic hit the US economy.