Stock futures fell on Thursday as interest rates jumped as Federal Reserve officials signaled that raising interest rates to slow inflation is far from over.
Futures contracts linked to the Dow Jones Industrial Average fell 316 points, or 0.9%. S&P 500 futures fell 1.1%, while Nasdaq-100 futures fell 1.2%.
St. Louis Federal Reserve Chairman James Bullard he said in a letter Thursday that “the policy rate is not yet in an area that can be considered sufficiently restrictive.”
“The change in monetary policy stance appears to have had only limited effects on observed inflation, but market pricing indicates an expectation of subdued inflation in 2023,” Bullard added.
The two-year Treasury yield jumped to 4.42% Thursday morning, stoking fears that higher interest rates could tip the economy into recession.
“I’m looking at a very tight job market,” he said, “and I don’t know how you continue to bring that level of inflation down without some real slowdown and maybe we have deflation in the economy to get there.” President of the Federal Reserve Bank of Kansas City Esther George to The Wall Street Journal Wednesday.
Stocks most vulnerable to recession and rising rates led losses in pre-market trading. Financials led by Wells Fargo were down. Tech stocks of Tesla and Netflix fell.
“Additional monetary tightening and the cumulative impact of interest rate hikes this year suggest that recession risks remain high,” Mark Hefell, chief investment officer at UBS Global Wealth Management, wrote in a note. “We still believe that the macroeconomic preconditions for a sustainable recovery – that interest rate cuts and a decline in growth and corporate profits on the horizon – have not yet been established.”
The latest moves came on the heels of a bearish day on Wall Street, the second in three days. The S&P 500 and Nasdaq Composite fell 0.83% and 1.54%, respectively. The Dow Jones Industrial Average lost 39.09 points, or 0.12%.
Downward pressure arose from double routing from Target, which reported declining sales as inflation put a damper on shoppers heading into the holiday season. The Minneapolis-based chain closed down 13%, while its future guidance cast doubt on other retailers.