Dow drops more than 1,100 points

Dow drops more than 1,100 points

(Flickr Luis Villa del Campo)

WASHINGTON – The Dow Jones Industrial Average dropped more than 1,100 points on Monday.

The Dow opened at 25,520.96 and closed at 24,345.75, down 4.6 percent from Friday’s close.

The S&P 500 index dropped more than 4 percent. The NASDAQ Composite Index fell more by more than three-and-a-half percent.

Monday’s plunge comes the same day Jerome Powell succeeded Janet Yellen has Federal Reserve Chair.

Yellen gradually increased interest rates in the final years of her six-year tenure in response to near-unprecedented stock market rallies and increased wage growth.

During Yellen’s tenure the Fed pumped large sums of money into the economy via quantitative easing and purchased substantial debt holdings from the U.S. Treasury. Both measures had been implemented as a means of facilitating economic growth in the aftermath of the Great Recession.

Many economists have speculated that Powell, in response to increased wage growth and increased consumer spending, will increase interest rates at a faster rate as well as reduce the Fed’s debt portfolio.

Markets tend to react negatively to uncertainty and the impact of the plunge became most apparent on Friday when the Dow dropped nearly 700 points.

Some economists have pointed to the signing into the law of the Tax Cuts and Jobs Act late last year as being in part responsible for the recent market plunge.

The Congressional Budget Office estimates that the legislation could increase the deficit by more than $1.4 trillion over the next decade.

The U.S. is more than $20 trillion in debt.

Congress is expected to raise the government’s borrowing limit by the end of March.

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