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Stocks fell as Powell signals rise is ahead

United States stocks dropped Thursday after Jerome Powell, the Federal Reserve Chairman, projected an increase in consumer prices this summer – something investors fear will pump interest rates up early than expected. Powell predicted increases in consumer prices and solid job growth as the coronavirus vaccination allows the economy to reopen completely. However, he signaled the Fed doesn’t think the country’s economy is at risk of overheating.

Still, the American market responded strongly to his interview. The ten-year United States government bond yield plunged and up almost 0.07 percent at 1.54 percent around closing time. In the meantime, stocks sold off. Whereas the Dow closed down 1.1.%, or 346 points and the S&P 500 finished 1.3% lower.

The Nasdaq Composite stumbled even more sharply, dropping 2.1%. The index managed just to avoid plummeting into correction territory – defined as a ten percent drop from its latest high – as it was down 9.7% from its 12th February record high. However, Nasdaq erased its gains for the year. According to Powell, they expect that as the economy reopens countrywide and hopefully picks up, they will see inflation move up. The present economic scenario is better than the previous year.

At present, the United States inflation is below the long-run target of the Fed of almost two percent. Actually, price surges are rather low for a long time. For the last some decades, the United States and global economy has been in a low inflation world. While the surge in prices during the reopening is likely will be short-lived.

This year the job markets won’t be fixed

As for the labor market, which is still short, around ten million jobs compared with February 2020 before the coronavirus hit – improvements are approaching, but the work is not complete yet. Powell says that there is good reason to expect job creation opportunities will pick up in the coming months. However, that does not mean the labor market will be recovered entirely in the coming December.

Stocks fell as Powell signals rise is ahead
Stocks fell as Powell signals rise is ahead
Source: Web

The central banker said that they still didn’t succeed in this. The next coming few months are very important for the outbreak. If the officials keep making progress, it will help the country’s economy. Let’s say the unemployment rate is currently at 6.3 percent – it is unclear whether the job market regains completely, considering that it does not count the workers who lost their job because of the pandemic. Thus, the United States observed the sharpest drop in labor force participation in several decades.

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