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Interest Rate Hike Prospect Sends US Stocks on a Rollercoaster Ride

Federal Reserve Chair Jerome Powell's recent remarks on interest rate hikes send shockwaves through the US stock market.

New York Stock Exchange
New York Stock Exchange

Powell Testifies on Capitol Hill

US stocks found themselves on shaky ground as Jerome Powell, Chair of the Federal Reserve, returned to Capitol Hill for the second day of his testimony. At 11:45 ET (15:45 GMT), the Dow Jones Industrial Average was more or less static, down by a mere 13 points. In contrast, the S&P 500 showed a modest rise of 0.2%, with the NASDAQ Composite pushing further upward with a 0.7% increase.

Interest Rate Hike on the Horizon

During his Wednesday testimony to the House, Powell signaled that the Federal Reserve has not finished raising interest rates as part of its strategy to combat inflation. His semi-annual testimony to Congress is part of a broader discussion on the health of the economy. Powell reiterated his stance to the Senate on Thursday, suggesting a possibility of two more rate hikes this year, conditional on the economy's performance. He highlighted that high inflation adversely impacts working families the most.

Jerome Powell
Jerome Powell

Data-Driven Decision-Making at the Fed

Assuming the economy continues on its present trajectory, Powell hinted that future rate hikes are "a pretty good guess" for the Federal Reserve's game plan. He said that futures traders currently see a 74% probability of a quarter percentage point rate hike at the Fed's July meeting. The next move from the Fed, according to Powell, will depend on key data. Current inflation data and a steady labor market suggest a cooling economy, with the latest initial jobless claims standing at 264,000, a figure mirroring the previous week's and slightly surpassing expectations.

Stock Market Repercussions

Several companies felt the impact of Powell's words on their stocks. Shares of Boeing's (NYSE: BA) parts supplier, Spirit AeroSystems Holdings (NYSE: SPR), took a nosedive by 9.7% after announcing plans to halt production at a Kansas plant due to an impending workers' strike. Boeing shares also suffered, falling by 2.4%. Furthermore, despite the parent company of Olive Garden, Darden Restaurants, Inc. (NYSE: DRI), offering yearly revenue guidance above estimates, their shares dropped by 1.6%.