Yellen’s remarks cause US stocks to decline

After Treasury Secretary Janet Yellen reiterated that if an agreement to raise the US debt ceiling is not reached, the United States will go into default on its debt and could not pay for federal bills in early June, US equities fell even lower on Wednesday. 231 points, or 0.7%, were lost by the Dow Jones Industrial Average. The Nasdaq Composite fell 1.1%, while the S&P 500 fell by 0.9%.

As negotiations between the White House and Republican lawmakers to raise the debt ceiling continued without reaching any deal, Wall Street’s major indexes declined on Wednesday. Following the publication of the minutes from the Federal Reserve’s meeting on May 2-3, FOMC Minutes, the stock market maintained its downward trend. The minutes revealed that Fed policymakers “generally agreed” last month that the necessity of further interest rate hikes “had become less certain.” The Minutes have also showed that Fed policymakers are split on backing additional interest rate hikes.

With numerous rounds of fruitless negotiations, the US government’s $31.4 trillion debt limit has not been raised in advance of the June 1 deadline, which has made investors nervous as the possibility of a disastrous default grows.

Democratic president Joe Biden and senior Republican in Congress Kevin McCarthy met again for negotiations on Wednesday. Investors had been highly enthusiastic about the US debt ceiling deal up until yesterday. However, as June 1 draws nearer, analysts are once more observing some caution.

The Nasdaq Composite sank 94.75 points, or 0.75%, to 12,465.50, the S&P 500 lost 30.49 points, or 0.74%, to 4,115.09, and the Dow Jones Industrial Average dropped 224.1 points, or 0.68%, to 32,831.41. Ten out of the 11 S&P 500 sectors were in the red, with real estate experiencing the biggest decline. The only sector to saw growth was energy.

Wall Street’s fear measure, the CBOE Volatility Index, was circling near three-week highs. Investors anticipated that the Federal Reserve will halt its aggressive rate hike campaign at its meeting on June 13-14, which brought up additional concerns about Fed policy. Inflation has not improved, according to Fed Governor Christopher Waller, and while delaying an increase in interest rates at the U.S. central bank’s meeting next month may be risky.

It is obvious that the deadlocked debt ceiling talks are fueling a general sense of gloom across financial markets, which saw safe-haven assets like the dollar maintaining their recent highs.