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US markets close lower as future rate-hike calculus continues

Equity markets continued on a downward course, with investors absorbing Federal Reserve Chairman Jerome Powell's seemingly hawkish Congressional testimony.

Noting that his "personal outlook for the economy has strengthened since December," Powell said Feb. 27 that he expected Federal Open Market Committee members to revisit their inflation expectations in light of data showing that the economy is still expanding and that wage growth had finally picked up. Powell's testimony was his first as Fed Chairman and was given in connection with the central bank's semiannual "Monetary Policy Report" to Congress.

The S&P 500 Index closed down 1.11% to 2,713.83, while the Nasdaq Composite Index closed down 0.78% to 7,273.01. Yields on the benchmark 10-year Treasury, which were up to 2.912% on Feb. 27, moderated to 2.864% by 5:00 p.m. in New York. The dollar continued to strengthen with the New York Board of Trade Dollar Index up 0.35% to 90.67.

"That was the most hawkish we've seen from a Fed Chair in a long long time," said Ward McCarthy, chief financial economist with Jefferies in a note.

Many took Powell's remarks as reflecting his business experience, rather than the economist background of his predecessor Janet Yellen.

"Powell didn't mince words," Arnim Holzer, portfolio manager for EAB Investment Group, said in a research note.

Those words, Holzer said, were clearly affecting equity investors "looking through to the potential knock-on effects of a fourth 2018 interest rate hike."