NEW YORK (AP) — The Dow Jones Industrial Average sank more than 1,000 points Friday after the head of the Federal Reserve dashed Wall Street's hopes that it may soon ease up on high-interest rates in its effort to tame inflation.

The S&P 500 lost 3.4%, its biggest drop since mid-June, after Jerome Powell said the Fed will likely need to keep interest rates high enough to slow the economy "for some time" in order to beat back the high inflation sweeping the country.

The Dow dropped 3% and the Nasdaq composite ended 3.9% lower, reflecting a broad sell-off led by technology stocks. Higher rates help corral inflation, but they also hurt asset prices.

The Fed has indicated it will raise rates into next year as it tries to quell demand and bring down prices for goods and services. But some investors speculated the central bank might pause or even reverse course next year if inflation subsides, leading to a rally for stocks in July and early August.

Some analysts expected Powell to bat down that talk in Friday's speech, and he delivered. His speech followed up remarks by several other Fed officials, who also pushed back on speculation the Fed might act less aggressively or even "pivot."

"He basically said there will be pain and that they won't stop and can't stop hiking until inflation moves a lot lower," said Brian Jacobsen, senior investment strategist at Allspring Global Investments.

Powell acknowledged the increases will hurt U.S. households and businesses, in perhaps an unspoken nod to the potential for a recession. But he also said the pain would be far greater if inflation were allowed to fester and that "we must keep at it until the job is done."

He was speaking at an annual economic symposium in Jackson Hole, Wyoming, which has been the setting for market-moving Fed speeches in the past.

The sell-off capped a week of choppy trading that left major indexes down 4% or more for the week.

All told, the S&P 500 fell 141.46 points to 4,057.66. The benchmark index is now down almost 15% for the year.

The Dow lost 1,008.38 points to close at 32,283.40. The last time the blue-chip average had a 1,000-point drop was in May.

The Nasdaq slid 497.56 points to 12,141.71, its biggest drop since June.

The Russell 2000 index of smaller companies fell 64.81 points, or 3.3%, to finish at 1,899.83.

Stocks are still showing solid gains for the third quarter, with the S&P 500 up more than 7% and the Nasdaq up 10%. Recent earnings reports were better than some analysts had expected, and there are signs that inflation may have peaked although it remains at sharply elevated levels.

Still, Powell's speech made clear the Fed will accept weaker growth for a while for the sake of getting inflation under control, analysts said.

"Powell reiterated that the Fed is worried about rising prices, and getting inflation under control is emphatically job number one," said Jeff Klingelhofer, co-head of investments at Thornburg Investment Management.

Perhaps giving some hope to investors, some analysts said Powell seemed to indicate expectations for future inflation aren't taking off. If that were to happen, it could cause a self-perpetuating cycle that worsens inflation.

A report on Friday said U.S. consumers are expecting 2.9% annual inflation over the long run, which is at the lower end of the 2.9% to 3.1% range seen in the University of Michigan's survey over the last year.

For now, the debate on Wall Street is whether the Fed will raise short-term rates by either half a percentage point next month, double the usual margin, or by three-quarters of a point. The Fed's last two hikes have been by 0.75 points, and a slight majority of bets on Wall Street are favoring a third such increase in September, according to CME Group.

A report Friday morning showed that the Fed's preferred gauge of inflation decelerated last month and wasn't as bad as many economists expected. It's a potentially encouraging signal, which may embolden more of Wall Street to say that the worst of inflation has already passed or will soon.

Other data showed that incomes for Americans rose less last month than expected, while consumer spending growth slowed.

Following the reports and Powell's comments, the two-year Treasury yield rose for much of the day, but slipped by late afternoon to 3.36% from 3.37% late Thursday. It tends to track expectations for Fed action.

The 10-year Treasury yield, which follows expectations for longer-term economic growth and inflation, initially rose then slipped to 3.02% from 3.03% late Thursday.

The Fed has already hiked its key overnight interest rate four times this year in hopes of slowing the worst inflation in decades. The hikes have already hurt the housing industry, where more expensive mortgage rates have slowed activity. But the job market has remained strong, helping to prop up the economy.

Investors got a fresh set of warnings from companies about the persistent impact from inflation and a slowing economy. Computer maker Dell slumped 13.5% after it said weaker demand will hurt revenue. Chipmaker Marvell Technology fell 8.9% after giving investors a disappointing earnings forecast.

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AP Business Writer Joe McDonald contributed. Veiga reported from Los Angeles.

The Federal Reserve announced Wednesday that interest rates will go up .75 of a point as part of the board's effort to slow inflation. The increase marks the highest interest rates have been since 2008.

The higher interest rates make borrowing for items such as homes and cars more expensive.

The Fed Board voted unanimously to raise interest rates.

"Recent indicators point to modest growth in spending and production," the Fed said. "Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. Russia's war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity. The Committee is highly attentive to inflation risks."

The risk of raising interest rates, experts say, is that it could cause the U.S. to slip into a recession.

The effective federal interest rate is now over 3% for the first time since January 2008. Interest rates peaked at 5.25% in late 2006 and early 2007, roughly a year before the U.S. went into a recession.

From 2009 through the middle of 2017, interest rates remained below 1% before reaching a peak of around 2.42% in 2019.

In response to the pandemic, the Fed lowered rates nearly to 0 until early this year. But with the highest inflation in over four decades, the Fed has responded with a rapid succession of rate hikes.

WASHINGTON —

Federal Reserve Chair Jerome Powell said Thursday that the central bank may have to tighten its oversight of the American financial system in the wake of the failure of three large U.S. banks this spring.

Related video above: Analyst discusses what lies ahead in the market as fed pauses rate hikes

Powell said in prepared remarks delivered at a banking conference in Madrid that tougher regulations put in place after the 2007-2008 financial crisis have made large multinational banks much more resilient to widespread loan defaults, such as the bursting of the housing bubble that led to that crisis.

But the collapse of Silicon Valley Bank, Signature Bank and First Republic Bank exposed different vulnerabilities that the Fed will likely address through new proposals, Powell said.

He did not provide details, but other Fed officials have said banks should be required to hold more capital in reserve to guard against loan losses.

Such proposals are likely to face resistance from the banking industry and some congressional Republicans, who argue that the Fed had the necessary tools to prevent the bank collapses but failed to use them.

One reason regulators missed the threats to the three banks was "the natural human tendency to fight the last war," Powell said.

The 2008 financial crisis occurred because of widespread defaults after the housing bubble burst. But Silicon Valley Bank failed for different reasons: A rapid increase in interest rates sharply lowered the value of its bond holdings, because they paid out lower interest rates than newer bonds.

"These events suggest a need to strengthen our supervision and regulation of institutions of the size of SVB," Powell said. "I look forward to evaluating proposals for such changes and implementing them where appropriate."

In a question and answer session, he indicated that the rules needed to be updated to account for how quickly a bank run could happen.

"A bank run used to be people standing in line at an ATM," the Fed chief said. "That's very different from what we saw at Silicon Valley Bank," with depositors using smartphones to move money instantly.

Fed supervisors had spotted bank vulnerabilities, including exposure to rising rates, but were working within a system that moved too slowly to head off trouble, Powell said.

"The supervisors were on the right issues, but they were operating under a standard playbook where you escalate things fairly carefully, fairly slowly," he said.

An ongoing review of Fed supervision would "try to find ways to be more agile and, where appropriate, more forceful," Powell said.

Banks with $100 billion to $250 billion in assets — which included all three failed banks — were freed from some requirements in 2018 under legislation passed by Congress and rules issued by the Fed.

Last week, Powell faced significant pushback from Republicans during House and Senate hearings over the potential for tighter rules. Michael Barr, the Fed's top regulator, has said the central bank might require larger banks to hold more capital in reserve.

Yet GOP members of Congress charge that such requirements would limit banks' ability to lend and slow the economy.

Powell said during those hearings that a proposal might be issued next month. But he repeated Thursday that any new rules would require a public comment process and would be phased in over time, meaning they might not come into effect for several years.

"The bank runs and failures in 2023 ... were painful reminders that we cannot predict all of the stresses that will inevitably come with time and chance," Powell said. "We therefore must not grow complacent about the financial system's resilience."

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AP Business Writer David McHugh contributed from Frankfurt, Germany.

WASHINGTON —

The Federal Reserve hiked its benchmark lending rate this week for the seventh time this year, capping a year of intense pressure on the housing market that pushed mortgage rates above 7% for the first time since 2002.

But now that the Fed has signaled a softer approach to cooling the economy instead of rolling out bumper rate hikes, potential home buyers are left to wonder: Will mortgage rates come back down? Or have buyers missed their chance?

No one knows exactly where mortgage rates will go in the months ahead. But most experts agree that we have seen the end of 3% mortgages for some time.

Mortgage rates have run up so far and so fast this year that many would-be homebuyers can no longer afford to buy a home. At the end of 2022, when rates were at 3%, few predicted that just a year later rates around this week’s 6.33% would come as a relief, having dropped from over 7%.

After starting the year at an average 3.22%, according to Freddie Mac, the 30-year fixed-rate mortgage took off last spring as the Federal Reserve embarked on a historic campaign to battle decades-high inflation by raising interest rates. By fall, mortgage rates had more than doubled, eventually topping 7% in October. Rates have receded slightly in recent weeks, but loans are still expensive — especially compared to the historically low rates buyers were getting during the pandemic.

Home shoppers have watched their buying power evaporate, with higher rates adding hundreds of dollars onto what they would pay each month.

High mortgage rates remain the primary impediment to home buying, according to a recent buyer and seller sentiment survey conducted by Fannie Mae. Homebuying and home-selling sentiment are both significantly lower than they were last year.

Based on the survey, people in the real estate market continue to expect mortgage rates to rise but home prices to decline, said Doug Duncan, Fannie Mae senior vice president and chief economist.

He said he expects mortgage demand to be dampened by affordability challenges, while “homeowners with significantly lower-than-current mortgage rates may be discouraged from listing their property and potentially taking on a new, much higher mortgage rate.”

Is this the new normal?

While the Fed’s rate hikes are expected to continue, many analysts anticipate they will be smaller than the recent bout of three-quarter-point hikes and will start to taper off as inflation starts to cool, which should mean mortgage rates will likely come down too.

The Fed does not set the interest rates borrowers pay on mortgages directly. But its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasury bonds, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.

If rates do drop, just how low will they go?

“If inflation continues to decelerate over the next several months, mortgage rates will likely stabilize below 7%,” said Nadia Evangelou, senior economist and director of forecasting at the National Association of Realtors. “That’s still double the previous year’s rate, but it’s better than an 8% rate, which is the historical average for the 30-year fixed mortgage.”

Looking ahead, Melissa Cohn, regional vice president at William Raveis Mortgage, said buyers should expect rates to level off in 2023 around where they were in the years before the pandemic — around 4% or 5%.

“We had an active and healthy real estate market then,” she said.

But Cohn said she does not expect a “meaningful” decline in mortgage rates until the third or fourth quarter of 2023. “Mortgage rates will drop a bit in December, we’ll see a brief flurry of activity, but there are likely to be more increases in the new year.”

And don’t expect to see rates drop at the same speed at which they rose this year, she said.

“We have to remember mortgage rates come down much slower than they go up,” said Cohn. “Banks will want to see proof that rates are meaningfully coming down and not a one-shot wonder.”

The weekly swings in mortgage rates this year have been about three times the size of those seen in a typical year, said Danielle Hale, chief economist at Realtor.com. The Fed’s extra-large rate hikes aren’t the only thing causing that.

Economic uncertainty is creating a larger gap or “spread” between the 10-year Treasury yield and mortgage rates. Typically, mortgage rates are about two percentage points above the 10-year Treasury yield, but recently the gap has been wider.

The main driver of the widening spread is greater interest rate risk, according to a recent report from the Urban Institute.

“The uncertainty about the effects of Fed policy to date and about the trajectory of future policy has resulted in large movements in interest rates,” wrote Laurie Goodman and Michael Neal, the report’s authors.

Consumer mortgages are packaged and sold off to investors. The higher myeortgage rates are, the more money investors can make. But as rates fall, more homeowners will choose to prepay their mortgages or refinance, making the loans less attractive to investors.

“Volatility increases the level of mortgage rates, compared to Treasury rates, because of the prepayment option,” said Chester Spatt, professor of finance at Carnegie Mellon University’s Tepper School of Business. “If you’re in a new loan at 7% and rates go to 6%, you may choose to prepay and refinance into a lower rate.”

It is abnormal to have such a large spread, said Lawrence Yun, chief economist for NAR, adding that other times when the spread was wider were during the 2008 financial crisis and the early days of the pandemic.

“Hopefully this large spread will dissipate by the spring home buying season,” he said. “If so, maybe buyers will face mortgage rates in the 5’s.”

What buyers can expect

Lisa Sturtevant, chief economist at Bright MLS, a multiple listing service in the mid-Atlantic region, also expects mortgage rates to fall further in 2023, but she doesn’t expect them to drop quickly.

“We were in unprecedented territory with rates under 3%,” she said. “There is no reason to suggest we will be back there. But they will be down from where we’ve been.”

“Housing market activity will continue to be relatively sluggish — even if mortgage rates do begin to come down — since so many existing homeowners are locked into sub-3% loans and will still not be eager to move into a higher rate,” she said.

As a result, the inventory of available homes for sale will remain tight into 2023. In many markets this could guard against prices dropping by a significant amount.

“Prospective buyers may be tempted to try to ‘time’ rates to jump into the market when rates dip,” she said. “But timing rates is difficult.”

Instead, would-be buyers should shop around, getting quotes from multiple lenders, including different types like a large national bank, an online lender or a community bank or credit union.

“There is a lot of variability in rates, terms, and mortgage products in this changing market,” Sturtevant said. “It is more important than ever that buyers compare offers from different lenders to find the financing that works best for them.”

Tuesday stocks fell as volatile trading on Wall Street continued after markets went swinging from steep losses to gains.

European stocks were higher after a day of steep losses in Asia. Markets are waiting to hear from U.S. Federal Reserve chair Jerome Powell after a two-day policy meeting.

Other factors adding to uncertainty are the possibility of conflict between Russia and Ukraine and concern over coronavirus outbreaks. Japan has expanded the number of areas observing special precautions to slow the spread of infections as the omicron variant of coronavirus surges.

On Monday, a late buying spree pushed the benchmark S&P 500 index to a 0.3% gain after pulling it out of so-called correction territory. It was a drop of 10% or more from its recent high.

U.S. stocks changed rapidly as fears of inflation persisted. Investors fearing a tightening by the Fed saw stocks trying to claw "their way back from a massive Monday liquidation," as Edward Moya, senior market analyst of the Americas at Oanda told CNN Business.

The swings are coming as traders try to assess how a stubborn resurgence of inflation will affect the economy and how well the Federal Reserve will succeed in fighting it by pulling back its stimulus policies and raising interest rates.

The Federal Reserve is signaling that it will increase interest rates this year to deal with rising inflation.

Financial experts say those rate hikes will be small —only a quarter to maybe half a percentage point at a time — since current interest rates are near zero. However, the impact will be felt right away.

"Where you're going to see the impact quickest is going to be on things like credit card debt and home equity lines of credit. That variable-rate debt tends to reprice very quickly," said Greg McBride, the chief financial analyst at Bankrate. "You'll often see that higher rate within one to two statement cycles. Things like mortgage rates tend to move in advance because mortgage rates are based more on the outlook for the economy and inflation."

McBride says Americans should consider making a few moves before interest rates climb.

First off, take care of credit card debt.

"This is the time to act aggressively by paying down and paying off that debt before it becomes costlier as rates rise," McBride said. "If you have good credit, take advantage of those 0% and other low-rate balance transfer offers. With the ability to transfer the balance to one of those low-rate cards, you do two things. One, you give yourself this runway to get that debt paid off once and for all. But in the meantime, you're also insulating yourself from higher interest rates."

McBride also says those considering refinancing mortgages should act quickly before rates increase. Refinancing now can cut monthly payments by $100 to $200.

However, McBride says there's no need to rush a car purchase.

"When it comes to something like buying a car, rising interest rates really are the least of your concerns because it has such a minimal effect on the monthly payments," he said. "A quarter-point increase in rate, it's really only a difference of about $3 a month on a $25,000 loan, so nobody's going to have to downsize from the SUV to the compact because of rising interest rates."

McBride expects inflation to stay above what we've been used to for several years. For the better part of a decade before the pandemic, inflation remained below 2%, but he expects rates to stay above 2.5-3% moving forward.

WASHINGTON — The Federal Reserve said Wednesday it would quicken the pace at which it’s pulling back its support for the post-pandemic U.S. economy as inflation surges.

Fed officials also said they expect to raise interest rates three times next year.

In an abrupt policy shift, the Fed announced that it would shrink its monthly bond purchases at twice the pace it previously announced, likely ending them in March.

The bond purchases were intended to hold down long-term rates to aid the economy but are no longer needed with unemployment falling and inflation at a near-40-year high.

The accelerated timetable puts the Fed on a path to raising rates in the first half of next year.

Earlier this month, the Labor Department reported that inflation jumped 6.8% in November compared with a year earlier. That marked the highest annual inflation rate since 1982.

Prices for commodities like food, gasoline and housing are rising rapidly, intensifying pressure on consumers — especially lower-income households.

A recent survey from the National Federation of Independent Businesses says 57% of firms are raising prices, while just 6% are cutting prices.

The surge in oil prices this year has angered drivers, tainted Americans' views on the economy and confounded both the White House and Federal Reserve. Unfortunately, JPMorgan Chase said the oil spike is just getting started.

In a new report on Monday, JPMorgan warned clients that Brent crude oil will hit $125 a barrel next year and $150 in 2023, in large part because OPEC doesn't have nearly as much firepower to respond to high prices as many assume.

"They don't have the barrels. It's a mirage," Christyan Malek, JPMorgan's head of oil and gas research and the lead author of the new report, told CNN in a phone interview.

$150 oil is more than double today's Brent price of about $73.50. If that forecast proves accurate, it would likely translate to national gas prices topping $5 a gallon and surely exacerbate inflationary pressures hitting the U.S. economy and squeezing American families.

The central problem, Malek said, is that while OPEC nations have plenty of oil in the ground, they don't have the capital and logistics to deliver it quickly.

OPEC's real spare capacity, a closely watched metric that measures the amount of barrels that can swiftly be added to the market, stands at just 2 million barrels per day next year, JPMorgan estimates. That is less than half of what many on Wall Street assume.

OPEC's spare capacity equates to just 4% of total capacity, down from an average of 14% between 1995 and 2020 and well below the 10% comfort level, JPMorgan said. When this buffer gets unusually low, oil prices can spike and investors apply a premium to prices.

Omicron sent oil nosediving

Importantly, JPMorgan is not calling for oil to trade at $125 a barrel for all of 2022. Instead, the bank is predicting crude will average $88 next year and "overshoot" to $125 at some point. Likewise, JPMorgan sees Brent averaging $82 in 2023 but overshooting to $150.

Still, the timing of the call is somewhat curious.

Oil prices collapsed on Friday on fears that the omicron variant will deal a blow to surging energy demand by eating into the amount of people driving and flying. Crude bounced back Monday, though it remains well below recent highs.

But Malek explained he has been working on this analysis for months and the forecast isn't altered by omicron. That's because if the new coronavirus variant does dent demand, OPEC would likely offset it by cutting demand.

"They will look for excuses to take a breather," Malek said of OPEC.

OPEC and its allies are meeting on Thursday and must decide whether to push forward with a plan to add 400,000 barrels per day in supply despite the omicron fears and a United States-led intervention to unleash strategic reserves. Prior to the emergence of omicron, the White House urged OPEC+ to stick with its plans to gradually increase supply.

$150 oil would translate to $5 gas

Veteran energy analyst Tom Kloza, president of the Oil Price Information Service, said $150 oil would roughly translate to $5-a-gallon gasoline nationally.

And that doesn't include the impact from more states joining California and Oregon in imposing carbon costs aimed at slashing emissions.

Prices at the pump have already been a sore spot for consumers. The national average currently stands at $3.39 a gallon, up from $2.13 a year ago, according to AAA.

JPMorgan said world oil producers, including OPEC, have failed to put up the amount of capital required to ramp up production enough to meet demand. The Wall Street bank estimates there is a $750 billion gap in terms of global oil capital spending, requiring oil to rise to $80 to incentivize further investment.

"We've taken oil availability for granted," Malek said.

The Federal Government has been pushing out trillions of dollars over the past few weeks in an effort to stabilize the U.S. economy during this turbulent time.

Watchdog groups, like the U.S. Public Interest Research Group (U.S. PIRG), have been calling for real-time transparency to know where the money is going and which companies are getting it.

Now, at least one federal authority, the Federal Reserve System, has announced it will answer that call. The Fed has promised it will begin publishing the names of those corporations receiving assistance under its emergency programs on a monthly basis.

“Honestly, it was pretty incredible that the Federal Reserve agreed to this kind of disclosure,” said R.J. Cross with U.S. PIRG. “I am hoping that that level of transparency will be carried forward to all the agencies in the CARES Act.”

The Fed’s move comes amid growing concern around the Small Business Administration’s Paycheck Protection Program (PPP). A week ago, reports revealed at least a handful of large publicly-traded companies had received PPP loans. The fast food chain Shake Shack, with a market capitalization or value of nearly $1 billion, was one of them. Shake Shack, though, was also one of the first companies to return its PPP money, which amounted to $10 million.

However, after initial concerns over some larger companies receiving PPP loans intended for much smaller businesses, a data analytic company, FactSquared, used its resources to dig through some Securities and Exchange Commission filings. Publicly-traded companies are required to report “material events” to investors and getting millions of dollars in loan money from the federal government would be a material event. So, FactSquared, decided to go through thousands of SEC filings, and was able to compile a report that revealed far more larger companies received PPP loans than initially thought.

FactSquared found at least $900 millions in forgivable small business loans went to more that 240 public companies. For example, The Lakers basketball franchise received $5 million and one luxury hotel chain was able to treat each of its hotels as an individual business and applied for 117 loans, getting at least $40 million so far.

That luxury hotel chain, Ashford Hospitality Trust, plans to keep all the funds, according to a recent statement, while the Lakers and more than a dozen other businesses have committed to returning their PPP loan money. Combined, amongst 15 businesses that have stated they will return their PPP loan money, more than $116 million is expected to be return.

“The fact that some companies are saying ‘oops, our bad’, this gets back to the purpose of transparency and why this type of information should be released,” said Bill Frischling with FactSquared.

FactSquared was only able to find less than 1 percent of the companies that took PPP loans through the public SEC filings, but its report is now being used as a real-time example of why real-time transparency is needed.

“It doesn’t do us any good three months down the line to have found out this list of companies, that money would’ve already been spent,” said Cross. “It is because this transparency happened so quickly that we are able to course correct, and companies can give that money and the treasury can readjust its rules moving forward, so that way, this money can actually help those it was intended to help.”

The SBA has not yet agreed to release the information around all businesses that receive a PPP loan. However, the treasury department has now announced every company that got more than $2 million will be fully audited, but companies have until May 7 to return the money to avoid that.