Wall Street benchmarks closed sharply down on Wednesday, after Federal Reserve Chairman Jerome Powell warned of a longer recession if Congress did not step in with additional fiscal stimulus.
The Dow Jones Industrial Average ended the day lower by just over 515 points, with the S&P 500 down by 1.7 percent. The Nasdaq — which earlier this week had turned positive for the year, breaching the 9,000 mark — closed down by 1.5 percent on Wednesday.
“There is a growing sense that the economy may recover more slowly than we would like,” Powell said Wednesday morning during a scheduled video conference with the Peterson Institute for International Economics.
While the Fed has slashed rates to near zero and implemented a series of crisis relief measures that support lending and liquidity, Powell said the central bank's "timely and appropriately large" economic response "may not be the final chapter."
Powell continues to reject calls for negative rates, saying “I know there are fans of the policy, but for now it’s not something that we’re considering.”
Even before the coronavirus pandemic, President Donald Trump and some policy experts encouraged the Fed to consider negative interest rates to boost the economy.
Trump doubled down on that sentiment, telling reporters Wednesday in the White House he "feels strongly we should have negative rates."
Overall, concern is growing that despite the gradual reopening of the economy and return to work, the proverbial "V-shaped" recovery may not materialize — and the country may instead suffer a prolonged recession.
"This reversal of economic fortune has caused a level of pain that is hard to capture in words, as lives are upended amid great uncertainty about the future," Powell said, describing the scope and speed of the economic downturn as "significantly worse than any recession since World War II.”
Market participants also weighed concerns that the recently inked — and hard-fought — trade deal with China may flounder amid heightened tensions between the world's two largest economies. Rhetoric has ratcheted up in the past week, with the White House's top trade adviser, Peter Navarro, saying Beijing should be held accountable for spreading the coronavirus.
“They inflicted tremendous damage on the world, which is still ongoing,” Navarro told CNBC on Monday. “We’re up to close to $10 trillion we’ve had to appropriate to fight this battle.”
President Donald Trump tweeted on Wednesday that "100 trade deals" would not outweigh the damage caused by the "Plague from China."
Investors were also parsing disappointing monthly data from the Department of Labor that showed prices for U.S.-produced goods fell in April by the largest amount since 2015. The producer price index fell by 1.3 percent, far worse than economist expectations of 0.5 percent.