Major U.S. stocks closed lower on Thursday, while the greenback and Treasury yields rose as the Federal Reserves showed no sign of loosening its monetary policy.
The S&P 500 fell by 1.02 percent, The Dow Jones Industrial Average went down 1.15 percent and Nasdaq Composite dropped by 0.68 percent despite a temporary increase during the day. The MSCI world equity index, which monitors stock markets in 45 countries, was also down 0.85 percent during the closing.
The U.S. Dollar Index (USDX) showed that the greenback gained 1.103 points or 0.99 percent against six other currencies, hitting the 112.177 mark. The Treasury 10-year yields also increased by 6.3 basis points to 3.812 percent. Equity Capital market analyst David Madden said that the growths were related.
"The rise in U.S. yields is weighing on equities and it is driving up the U.S. dollar too," Madden said. "In recent weeks, the greenback has been a popular safe haven play and considering the fall in equities, it is also receiving a lift in that regard."
Fed Governor Lisa Cook discussed the Fed's tight monetary policy on Thursday, saying that the Fed was not planning to loosen it. The Fed acknowledged that the current monetary policy would cause “some pain” but insisted on the importance of restoring price stability. Investors, nevertheless, are worried that the Fed will overdo the hikes and lead the country to recession.
“The widespread nature of the inflation pressures suggests that the overall economy is very tight, with constrained supply continuing to fall short of demand,” Cook said. “The Fed cannot act directly on supply, but it can moderate demand by tightening monetary policy.”
The Fed has received criticisms for its inflation management. Former Treasury Secretary Larry Summers said that the committee underestimated the downsides of its action. Summers predicted that the unemployment rate in the U.S. would need to hit six percent to properly have inflation under control, exceeding the current projection of 4.4 percent by 2025.
U.S. labor situation
Investors are reportedly waiting for Labor Department monthly jobs reports on Friday. This report will provide insight into whether the Fed’s steady interest rate hikes in the past months have impacted the current inflation and overall economic situation. So far, data released this week offered “conflicting” information as some of them showed a decrease in labor demand while others said that the job market was still robust.
The Labor Department reported that there were 219,000 claims for unemployment benefits last week, exceeding predictions by 16,000. Bill Adams of Comerica Bank said the U.S. employment market was “softening.”
"As the unemployment rate ticks higher, wage growth will likely slow, taming some of the inflationary pressure in the U.S. economy,” Adams said.
New data on the consumer price index will be released next week. Economists expect consumer inflation to slow down in September to 8.1 percent, but it will remain at the highest level since the 1980s.
Another issue that may further complicate the economic situation is the Organization of the Petroleum Exporting Countries (OPEC)’s plan to increase prices by significantly cutting oil production. On Thursday, the price of oil jumped for the fourth time in a row. Brent crude futures climbed 1.1 percent to $94.42 per barrel, while U.S. crude rose 0.8 percent to $88.45 per barrel