NEW YORK—Stocks sank Tuesday after the head of the Federal Reserve warned it could turn the dial back up on its hikes to interest rates if pressure stays high on inflation. The warning shook markets and raised worries about a possible recession down the line.
The Fed’s chair, Jerome Powell, on Tuesday confirmed some of those fears and said the recent data mean “the ultimate level of interest rates is likely to be higher than previously anticipated.” He also said in his testimony to a Senate committee that the Fed is ready to increase the pace of its hikes again if needed.
“This is the market coming back to realistic expectations,” said Megan Horneman, chief investment officer at Verdence Capital Advisors. “I think it’s going to continue to wash out some of the excesses in the market.” On Tuesday, it again approached 4 percent after Powell’s comments before falling back to 3.97 percent from 3.96 percent late Monday.
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