Dow plunges 600 points as Fed officials say more rate hikes are needed to keep pulling inflation down

• US stocks tumbled after hawkish talk on rates from two Federal Reserve officials.
• St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester each see the need for rates to rise to 5% or beyond.

US stocks finished sharply lower Wednesday, reversing modest early gains, after two Federal Reserve officials stressed their desire to see more interest rate hikes aimed at tamping down on inflation.

The S&P 500 finished in the red for a second straight day, and none of its 11 sectors moved higher. Stocks rose earlier Wednesday after a drop in December retail sales and a deceleration in wholesale inflation underscored market expectations for the Fed to soften its rate-hike messaging. Retail sales fell 1.1%, and the PPI reading declined 0.5% month over month in December.

But later, St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester each acknowledged an overall slowing trend of inflation but said more interest rate increases to 5% or beyond are needed to drag prices toward the central bank's 2% target. The fed funds rate currently stands at 4.25%-4.5%.

Here's where US indexes stood at the 4:00 p.m. closing bell on Wednesday:

• S&P 500: 3,928.86, down 1.56%
• Dow Jones Industrial Average: 33,296.96, down 1.81% (613.89 points)
• Nasdaq Composite: 10,957.01, down 1.24%

Investors have been pricing in the potential for almost two rate cuts by the Fed, but the central bank is unlikely to make such moves this year, Tom Hainlin, global investment strategist at US Bank Wealth Management, told Insider.

"We think Federal Reserve members and Chair [Jerome] Powell, in particular, have been very consistent in the messaging that they need to see inflation heading towards their desired rate with enough confidence that they would not only slow their rate hikes and pause them, but cut them," he said. "We don't see that as a 2023 feature - more of a 2024 feature."

Hainlin said his firm is recommending defensive positions to its clients. "We think there's still a slowdown coming in consumer spending and in business investment, which indicates to us we haven't yet seen corporate profit estimates come down to a level we think they're actually going to come in at."

Stocks may finish 2023 with a positive return, with the S&P 500 potentially landing at 4,275, said Hainlin.

Here's what else is happening today:

• The Justice Department shut down a little-known crypto exchange called Bitzlato and arrested its Russian founder.
• A top economist said to expect US home prices to fall another 10%.
• The global stock-market rally at the start of 2023 faces risks from still-elevated inflation, UBS Global Wealth Management said.
• Sam Bankman-Fried said FTX's lawyers overlooked $428 million in cash and the bankrupt crypto exchange can make US customers whole.
• FTX lost $415 million worth of crypto to hackers, its new bosses said.
• Microsoft stock fell after the software maker said it's laying off 10,000 people, or about 5% of its workforce, as it prepares for a macroeconomic slowdown.

In commodities, bonds, and crypto:

• West Texas Intermediate crude turned lower, falling 1.4% to $79.10 per barrel. Brent crude, the international benchmark, fell 1.5% to $84.65.
• Gold lost 0.4% to $1,904.50 per ounce.
• The 10-year Treasury yield fell 13 basis points to 3.37%.
• Bitcoin lost 2.8% at $20,735.11.