Dow falls as US central banker offers a sombre view of economy

United States Federal Reserve Chairman Jerome Powell wants more US congressional support to shore up the economy, he said Wednesday. He also warned the coronavirus could cause deep economic damage. His comments – and a major shift in a US retirement fund – sent markets lower.

The Dow Jones Industrial Average fell 2.17 percent to close a 23,247.97. The widely used gauge of US retirement and education savings accounts, the S&P 500, lost 1.75 percent, to 2,820. The Nasdaq Composite Index dropped 1.55 percent to 8,863.17.

Stocks sold off as investors appeared to price in a deeper economic downturn than they had previously expected as they worried that Powell’s call for an additional stimulus would go unanswered.

While Powell pledged in a webcast to use the US central bank’s power as needed, he suggested that it might not be enough to avoid deep economic damage without more fiscal support. Powell’s comments added more pressure on US lawmakers to take steps to protect US workers.

“The Fed’s efforts amount to a temporary bridge loan to the private sector, but as time goes on, liquidity issues can morph into insolvencies. Long-term and large-scale business insolvencies can create long-term scars to the economy and the labor market,” wrote Oxford Economics’ Kathy Bostjancic in a research note.

Market participants said they were relieved by Powell’s indication that the Fed would not push interest rates below zero, but some seemed taken aback by his downbeat view on the economy.

Powell’s comments followed a sharp selloff in equities on Tuesday after a warning from leading US infectious disease expert Anthony Fauci that the virus was not yet under control. Fauci’s comments prompted concerns about how the economy would emerge from weeks of virus-related lockdowns.

The depth of Wednesday’s decline was due to the combination of Fauci’s comments and Powell’s warning, TD Ameritrade’s Shawn Cruz said: “The biggest implication is that some of the economic activity we’ve lost may never be recovered.”

Another negative factor was the decision by an independent board – one that oversees billions in federal retirement dollars – to indefinitely delay plans to invest in some Chinese companies.

“It adds to the tension ahead of an announcement Trump said could come this week on the phase one [US-China] trade deal,” said Charles Schwab’s Jeffrey Kleintop.

Oil prices settled with a loss on Wednesday, failing to find support even after US government data showed an unexpected weekly decline in domestic crude supplies, along with a fall in stocks at a key storage hub in Cushing, Oklahoma.

West Texas Intermediate crude for June delivery ended the day 1.9 percent lower, to settle at $25.29 a barrel. Brent crude, the global benchmark, fell 2.6 percent to$29.19 a barrel.