Dow Jones down 180 points after Powell speech on interest rates

The Dow Jones fell by almost 180 points after US Federal Reserve chair, Jerome Powell, gave a speech that didn’t signal that the Fed would reduce interest rates. Investors were hoping that the Fed would cut interest rates in July after keeping rates steady in June.

Powell stresses patience in implementing rate cuts

In a speech at the Council of Foreign Relations, Powell said that the Federal Open Market Committee [FOMC] members would take a ‘wait-and-see’ approach to reducing interest rates.

‘Since the beginning of the year, we had been taking a patience stance toward assessing the need for any policy change. We now state that the [Federal Open Market] Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion,’ said Powell.

Powell speaks about Fed’s independence from politics and US stock market

Powell asserted that the Fed’s policy on interest rates won’t be driven by the US stock market or political pressure.

‘Many FOMC participants judge that the case for somewhat more accommodative policy has strengthened. But we are also mindful that monetary policy should not overreact to any individual data point or short-term swing in sentiment,’ said Powell.

‘Congress chose to insulate the Fed this way because it had seen the damage that often arises when policy bends to short-term political interests,’ added Powell.

Investors were also worried after James Bullard, St. Louis Federal Reserve Bank President, said that a half-point rate cut would be ‘overdone.’

What do economic experts say about the Dow Jones?

Art Hogan, chief market strategist at investment firm National Securities, said that Powell and Bullard’s comments were doubly disappointing to investors.

‘You had a one-two punch. Powell came out and warned against policy bending to short-term political interests, but it is also Bullard, who is a dissenter, saying 50 basis points would be too much,’ said Hogan.

While much of Wall Street is concerned about Powell’s comments, Rick Meckler, partner at Cherry Lane Investment, says the upcoming US-China trade talks could have a greater impact on the Dow Jones.

‘The [US stock] market is really looking at two issues that push it higher. One is the trade agreement and the other is Fed policy. It's really trade policy that's going to be more meaningful,’ said Meckler.