U.S. stocks dive as Fed turns hawkish

NEW YORK, April 4 (Xinhua) -- U.S. stocks tanked on Thursday, as traders react to comments of Richmond Fed President Thomas Barkin that the U.S. central bank needs "time for the clouds to clear" regarding inflation before considering interest rate cuts.

The Dow Jones Industrial Average fell by 530.16 points, or 1.35 percent, to 38,596.98, posting its worst four-day decline since October. The S&P 500 sank 64.28 points, or 1.23 percent, to 5,147.21. The Nasdaq Composite Index shed 228.38 points, or 1.40 percent, to 16,049.08.

All of the 11 primary S&P 500 sectors ended in red, with technology and health leading the laggards by going down 1.72 percent and 1.40 percent, respectively. Energy posted the weakest decline, down 0.06 percent.

Barkin's remarks support a cautious approach to initiating a monetary easing cycle. He mentioned that inflation data at the beginning of the year has been somewhat less positive. "I think it is smart for the Fed to take our time. No one wants inflation to reemerge. And given a strong labor market, we have time for the clouds to clear before beginning the process of toggling rates down," said Barkin.

"I'm still looking for the slowing in reported inflation to sustain and broaden," he said.

In a separate talk, Minneapolis Fed President Neel Kashkari said he had penciled in two rate cuts this year in March. But if inflation continues to move sideways, he said, "that would make me question whether we needed to do those rate cuts at all."

Fed-funds futures point to a 62.6 percent chance that the Fed will lower its benchmark rate in June by a quarter-percentage point to a target range of 5.0 percent to 5.25 percent, according to the CME FedWatch Tool on Thursday.

Oil prices spiked on worries over the Middle East, and the U.S. 10-year Treasury yield dropped on Thursday. "Investors right now are sort of taking a wait and see attitude," said Sam Stovall, CFRA Research chief investment strategist. "The 10-year yield is the key driving force because of the concern of the Fed implying that they're in no hurry to cut rates, and therefore confirming the adage that the Fed will be slower to lower interest rates."

The highly anticipated March nonfarm payrolls report is scheduled for release on Friday. In February, the United States saw a job growth of 275,000, accompanied by a rise in the unemployment rate to 3.9 percent. A stronger-than-expected jobs report could lead to an increase in yields and add pressure on the Fed to sustain higher interest rates.