US stocks make biggest moves midday

US stocks pared back a rally as investors digested a round of comments from Federal Reserve officials suggesting more monetary tightening was needed to fight inflation even in the wake of turbulence in the banking sector. The S&P 500’s advance withered to 0.3% with financials again under pressure, while the tech-heavy Nasdaq 100 gained 0.6%. Treasuries were little changed and the dollar weakened.

The moves come as market watchers have struggled to predict the Fed’s path forward on interest rates after the collapse of three US banks earlier this month.

Richmond Fed President Thomas Barkin said the Fed can raise rates more if inflation risks persist. Boston Fed President Susan Collins also said tightening was needed. And Minneapolis Fed President Neel Kashkari said he’s committed to getting inflation back to 2% and that it’s not yet fully clear what impact the financial-system turmoil will have. Given the proverbial long and variable lag in the effects of monetary policy adjustments to be fully apparent, much of the Fed’s tightening over the past year has not yet been fully absorbed by the economy.

Recession risk remains in focus given the Fed’s historical track record of struggling to tighten policy while easing the economy to a soft landing. President Joe Biden’s administration also called on regulators Thursday to tighten the rules for mid-sized banks in response to the recent bank failures. Stress in the financial sector has increased the chance of the Federal Reserve tipping the economy into a recession with its rate hikes.