US: Wall Street retreats at the close amid economic uncertainty

[NEW YORK] Rising concerns about a US "soft landing" amid increasingly aggressive comments from Federal Reserve officials, sent stocks lower on Wednesday in a choppy week of trading.

More American central bankers have echoed Fed Chair Jerome Powell who earlier this week signaled aggressive rate hikes likely will be needed to contain inflation.

And although officials continue to downplay the risk of a recession, investors are skeptical.

A new surge in oil prices, which jumped about 5 per cent driven by the ongoing Russian war on Ukraine, added to the negative sentiment.

The Dow Jones Industrial Average and the tech-rich Nasdaq Composite Index each dropped about 1.3 per cent, closing at 34,358.5 and 13,922.6, respectively.

The broad-based S&P 500, meanwhile, fell 1.2 per cent to finish at 4,456.24.

"Uncertainty regarding the war in Ukraine and how aggressive the Fed will want or need to be to combat persisting inflation remain the areas of contention for the markets," Schwab analysts said.

Cleveland Federal Reserve Bank President Loretta Mester said the central bank will have to front-load interest rate increases into the first half of the year to get the benchmark to 2.5 per cent by the end of 2022, and continue hiking into 2023.

As Powell indicated on Monday, that will mean multiple increase of at least a half-point in the benchmark lending rate, she told reporters on Wednesday.

"The major economic challenge right now is inflation... And we have to do what we can do to bring inflation under control," said Mester, who is a voting member of the Fed's policy committee.

But she and Powell have said the US economy is strong enough to withstand the rate increases and removal of the stimulus provided to offest the hit from the Covid-19 pandemic.

Analysts say investors remain concerned.

"US stocks declined as the harsh reality sets in that the Fed most likely won't be able to navigate a soft landing as geopolitical risks will continue to keep upward pressures on prices and force the Fed into a difficult decision later this year," Oanda analyst Edward Moya said. AFP