Powell's Remarks Spark 700-Point Dow Drop, Rate Cut Hopes Fade

Federal Reserve Chairman Jerome Powell's recent remarks have dampened market expectations for a rate cut, leading to a significant sell-off in U.S. equities. The Dow Jones Industrial Average plummeted by nearly 700 points, marking a substantial decline in the market.

Powell's speech underscored the Federal Reserve's commitment to preventing tariff-driven inflation from becoming a more persistent issue. This stance aligns with Powell's previous statements, indicating that the Federal Reserve is not in a hurry to adjust its benchmark policy rate. Powell warned that President Trump's tariffs could temporarily boost inflation and that these effects might linger for an extended period.

Powell highlighted the high level of uncertainty facing the U.S. economy, noting the risks of rising unemployment and inflation. He emphasized that the Federal Reserve will assess the potential impacts of policy changes and observe economic behavior to formulate monetary policy in a way that best achieves its mandate. Powell also stated that it is too early to adjust monetary policy in response to tariff increases, as the economic impacts remain uncertain in terms of scale and duration.

In response to Trump's previous comments about replacing Powell, the Federal Reserve Chairman reiterated that the central bank's independence is enshrined in U.S. law and that its officials cannot be removed without cause. Powell's remarks have led to a shift in market expectations, with the probability of the Federal Reserve maintaining rates unchanged in May rising to 83.2%. The likelihood of no rate change by June stands at 32.8%, while the probability of a cumulative 25 basis point cut is 57.0%, and a 50 basis point cut is 10.2%.

Major technology stocks experienced a collective decline, with Tesla falling by 4.94% and Apple by 3.89%. Chip stocks also took a hit, with NVIDIA dropping nearly 7%, AMD falling over 7%, and the Philadelphia Semiconductor Index declining by 4.1%. Chinese companies listed in the U.S. also saw significant drops, with the Nasdaq Golden Dragon China Index falling by 2.72%. Meituan dropped nearly 8%, JD.com fell over 5%, and Alibaba and Xiaomi both declined by more than 4%.