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Dow Jones Falls More Than 550 Points As Investors Worried About Inflation
The Dow (UNDUE) lost some 600 points at its lowest and ended the day down 569 points, or 1.6%. The S&P 500 (SPX) closed down 2%. Tech stocks led the losses across the board, and tech stocks led losses across the board. Nasdaq Composite (COMP) finished down 2.8%.

The S&P marked its worst session since May, while the Nasdaq had its worst day since March. For the Dow Jones, it was only the worst drop since the sell-off last week.

“It’s a bit of a tantrum,” said Ed Yardeni, president of Yardeni Research.

The yield on 10-year Treasury bills, sensitive to inflation expectations, rose to 1.54% by the time of the closing bell. Bond yields and prices move in opposition.

Federal Reserve Chairman Jerome Powell’s inflation remarks scared investors this morning and pushed bond yields higher.
“Inflation is high and likely will remain so in the coming months before it moderates,” Powell said in prepared remarks to the Senate Committee on Banking, Housing and Urban Affairs.

“The supply side restrictions that are so central to inflation that we are seeing… in some cases they have worsened,” Powell told lawmakers during the hearing.

Rising inflation over the summer convinced economists and investors that the Fed would soon put the brakes on its massive monetary stimulus package. Last week, Powell said the central bank was almost there and that “a moderation in the pace of [monthly] asset purchases may soon be justified. “

There was little reaction to the stock market at the time as the comments lived up to expectations, but Tuesday’s liquidation could still be about cutting, the Fed’s process of cutting back on monthly purchases.

Debate on the debt ceiling

Powell and Treasury Secretary Janet Yellen testified before Congress on Tuesday about the pandemic and the CARES Act.

Yellen told lawmakers the government will run out of cash and face extraordinary measures by October 18 if Congress does not raise the debt ceiling.

“Deficits have been recorded in the Democratic and Republican administrations. It is important to recognize that,” Yellen said. “And that means paying the bills for these deficits is a shared responsibility and it shouldn’t be just one party’s responsibility.”

While policymakers are busy in Washington, American consumers are less and less confident. The Conference Board’s consumer confidence index fell for the third consecutive month in September “with the spread of the Delta variant continuing to dampen optimism,” said Lynn Franco, senior director of economic indicators at the Conference Board.

It’s not just stocks, bonds and the economy that make investors uncomfortable.

There is also a rout in the energy market, where prices are skyrocketing. One of the problems is a shortage of natural gas triggered by low inventories and increased demand as production activity accelerates after the Covid-19 lull. Natural gas futures for October were up 3% as the stock market closed.

– CNN’s Matt Egan and Julia Horowitz contributed to this report.

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