Stock futures fell Thursday and oil prices declined after Federal Reserve Chairman Jerome Powell acknowledged a recession in the U.S. will be hard to avoid as the central bank fights a rapid rise of inflation.
Oil prices fell on fears that an economic slowdown will crimp demand. West Texas Intermediate crude oil, the U.S. benchmark, declined 2.1% to $103.97 a barrel. That’s down from a multi-month peak of $122 just a few weeks ago.
The yield on the 10-year Treasury fell to 3.109% from 3.155%.
Stocks finished with modest losses Wednesday after Powell told U.S. lawmakers that the Fed was “strongly committed to bringing inflation back down,” but its efforts to do so by raising interest rates made a soft landing for the U.S. economy “very challenging.” Powell, however, did tell lawmakers that a slower pace of interest rate hikes was possible, but that would largely be dependent on whether economic data show growth and inflation slowing.
“Recession is certainly a possibility. Frankly, the events around the world over recent months make it harder [to engineer a soft landing,]” the Fed chairman said, referring to the war in Ukraine and Covid-19 lockdowns in China. Powell’s comments Wednesday were made before the Senate Banking Committee. He will address the House Financial Services Committee on Thursday.
Jeffrey Halley, senior market analyst at Oanda, said Powell’s discussion about a “challenging” soft landing “should have been enough to spark a somewhat counterintuitive risk sentiment rally as Fed hiking expectations were dialed back.” But instead, Halley said, the response was mixed as Powell “asserted, quite forcefully, that soaring inflation had to be brought back to earth.”
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