Stock markets in Canada, U.S. drop after Fed chair warns of further interest hikes

The S&P/TSX composite index, Dow Jones industrial average, S&P 500 index and Nasdaq composite all fell between 140 and 1,008 points after Jerome Powell's hawkish speech.

North American stock markets were down sharply Friday as investors reacted negatively to a speech by Federal Reserve chair Jerome Powell in which he said he expects to keep interest rates high in his fight against inflation.

The S&P/TSX composite index was down 299.05 points at 19,873.29.

In New York, the Dow Jones industrial average was down 1,008.38 points at 32,283.40. The S&P 500 index was down 141.46 points at 4,057.66, while the Nasdaq composite was down 497.56 points at 12,141.71.

Financial markets had been waiting all week for Powell’s highly anticipated speech from what is an annual meeting of U.S. central bankers at Jackson Hole, Wyo.

Investors had hoped Powell would use his remarks to signal the Fed’s willingness to begin easing its interest rate hiking cycle — perhaps even reversing some of its already instituted hikes as early as 2023.

That wasn’t what happened, however. Powell’s speech was far more hawkish in tone, as he made it clear that interest rates will need to continue to rise and will stay high for longer than many investors had hoped.

“He was more explicit than he’s been at any other point in time that rates are going to remain higher for a much longer period of time in order to combat inflation,” said Mike Archibald, VP and portfolio manager with AGF Investments Inc.

“That’s put some pressure on various parts of the capital markets, and certainly on equities today.”