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Stocks down after Fed chair suggests higher interest rates needed to fight inflation

Inflation has run rampant in 2022, causing significant price increases in essential goods such as groceries and gas.

NEW YORK — Wall Street was pointed toward losses before markets opened on Friday, following global shares lower after Federal Reserve Chair Jerome Powell indicated aggressive increases in interest rates were needed to fight inflation.

The futures for the Dow industrials fell 0.3% while the same for the S&P 500 slipped 0.1%.

Most major global indexes declined, though Shanghai edged higher after authorities there promised to ease anti-virus controls on truck drivers that are hampering food supplies and trade. Oil prices fell more than $1 a barrel.

In a panel discussion held Thursday by the International Monetary Fund, Powell said the Fed must move faster than it has previously to tackle high inflation, which suggests sharp interest rate increases are likely in coming months.

The S&P 500 reversed direction after that, closing 1.5% lower on Thursday, while the Dow Jones Industrial Average fell 1% and the Nasdaq slid 2.1%. The Russell 2000 small caps index gave up 2.3%.

“Under the weight of war, global energy and food risk, equity markets may well begin to buckle, unfortunately in a rather spectacular manner. We have been saying for some time that the only way to protect your investment portfolio is to be cautious on equities and buying gold, oil and the U.S. dollar,” said Clifford Bennett, chief economist at ACY Securities.

The Fed has already announced a quarter-percentage point rate hike and Wall Street expects a half-percentage rate hike at its next meeting in two weeks. Other central banks have also moved to raise interest rates to try and temper the impact of rising prices on businesses and consumers.

Powell suggested that “there’s something in the idea of front-loading” aggressive rate hikes as the Fed grapples with inflation that has reached a four-decade high.

That suggests a half-point rate increase could be on the table when Fed officials hold their next interest rate and economic policy meetings May 3-4, Powell said. In the past, the Fed has typically raised its benchmark short-term rate by more modest quarter-point increments.

Investors are also watching for developments in Ukraine and a presidential runoff election in France this weekend.

Germany’s DAX fell 1.2% in midday trading Friday, while France's CAC 40 slipped 1.4% and Britain's FTSE 100 shed 0.4%.

In Asian trading, Japan’s benchmark Nikkei 225 dipped 1.6% to finish at 27,105.26. Australia’s S&P/ASX 200 dropped 1.6% to 7,473.30. South Korea’s Kospi shed 0.9% to 2,704.71. Hong Kong’s Hang Seng slipped 0.2% to 20,638.52, while the Shanghai Composite recouped earlier losses to edge up 0.2% to 3,086.92.

Japanese Finance Minister Shunichi Suzuki made comments seen as a slightly more forceful pushback against “sudden movements" in exchange rates after meeting with Treasury Secretary Janet Yellen on the sidelines of G-20 finance ministers’ meetings.

The U.S. dollar dipped slightly to 128.30 Japanese yen from 128.36 yen. The euro cost $1.0822, inching down from $1.0840.

The dollar has surged recently against the yen and other currencies and a growing gap between interest rates in Japan and some other Asian countries and rising U.S. interest rates is unlikely to abate.

An intervention, particularly from the U.S., may be coming, said Stephen Innes at SPI Asset Management.

"The BOJ is likely to remain steadfast in its approach to ultra-dovish monetary policy relative to its peers that implicitly welcomes yen depreciation,” Innes said, referring to Japan's central bank.

In France, President Emmanuel Macron appeared to have widened his lead over far-right challenger Marine Le Pen, easing some worries about potential major changes in Europe. Macron has received support from the center-left leaders of Germany, Spain and Portugal, who urged in a newspaper editorial for French voters to shun the “extreme-right candidate” without mentioning Le Pen by by name.

Bond yields have been gaining ground as investors prepare for higher interest rates. The yield on the 10-year Treasury held steady on Friday at 2.92% after hovering near its highest levels since late 2018.

Benchmark U.S. crude fell $1.07 to $102.72 a barrel. It rose 1.6% on Thursday and is up roughly 40% for the year. That has made gasoline more expensive, which cuts deeper into consumers' wallets. Brent crude, the international standard, lost $1.04 to $106.92 a barrel.

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