Stock market drop: Dow Jones sinks 800 points as investors eye possible interest rate hikes

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Stocks fell sharply Monday, the Dow Jones Industrial Average finishing the morning down hundreds of points, continuing a drop that jolted the market late last week.

The S&P 500 was down 3.8% as of roughly 11 a.m. Monday, while the Dow fell 879 points, or 2.8%, and the Nasdaq composite dropped 4.5%. All had improved slightly as of noon.

Wall Street entered a “bear market,” the Associated Press said, as the S&P 500 dropped more than 20% below its record set early this year.

Stocks fell drastically on Friday after the Labor Department said inflation had reached a 40-year high, jumping 8.6% over a year prior, and faster than April’s price surge of 8.3%.

Investors were focused on whether the Federal Reserve would raise interest rates in a bid to counter inflation. Doing so would be the Fed’s main method of slowing the economy, but carries a risk of causing recession if used over aggressively, the AP said.

The Fed raised interest rates by half a percent last month, the most in 22 years, CNN reported. Chair Jerome Powell said rates may continue rising until inflation comes under control.

The job and housing markets do not appear to be in danger of collapsing, the network said.

In an interview with CNN on Sunday, former Fed Chair Ben Bernanke said a recession remains possible. He added that he remains hopeful that the Fed can thread a difficult needle, slowing inflation enough to be under control, but not so far that the country enters a recession.

“Economists are very bad at predicting recessions,” Bernanke said, “But I think the Fed has a decent chance — a reasonable chance — of achieving what Powell calls a ‘soft-ish landing’: either no recession or a very mild recession to bring inflation down.”

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