Dow, S&P 500 Edge Higher as Powell Testifies to Congress

Investors have been watching closely for signs of how the Fed will proceed in its campaign to bring down high inflation by raising interest rates. Central bank officials last week agreed to raise their benchmark interest rate by 0.75 percentage point, their largest rate increase since 1994.

Mr. Powell testified before Congress on Wednesday and is scheduled to testify again on Thursday. In prepared testimony, Mr. Powell said the central bank plans to continue raising interest rates until it sees clear evidence that inflation is slowing to its 2% target.

An economic downturn is “certainly a possibility,” Mr. Powell said Wednesday during the congressional hearing. “We are not trying to provoke and do not think we will need to provoke a recession, but we do think it’s absolutely essential” to curtail inflation.

Separately, Federal Reserve Bank of Philadelphia President

Patrick Harker

said Wednesday that the U.S. economy may see a modest contraction in growth, but that he expects the job market to remain strong.

Stocks have gyrated in recent weeks as twin fears—soaring inflation and slowing growth—hang over markets. The S&P 500 is on track for its worst first half of the year in decades, according to Deutsche Bank analysts. U.S. stocks rallied Tuesday after their worst week since March 2020, offering investors a reprieve from a recent stretch of whipsaw trading that had sent stocks and cryptocurrencies falling.

Investors sought assets viewed as safer to hold Wednesday, such as U.S. government debt. In bond markets, the yield on the benchmark 10-year Treasury note ticked down to 3.160% from 3.304% Tuesday. Yields fall when prices rise. 

“Folks are really reckoning with the fact that probabilities of recession seem to be increasing,” said

Gavin Stephens,

director of portfolio management at Goelzer Investment Management.

Investors are worried that worsening economic data could precede a slowdown in U.S. growth, limiting nonessential spending. Economists surveyed by The Wall Street Journal have substantially raised the probability of recession, now putting it at 44% in the next 12 months, a level usually seen only on the brink of or during actual recessions.

“This narrative of recession is starting to lead the market,” said

Sebastien Galy,

a macro strategist at Nordea Asset Management.

Recession fears weighed on shares of energy companies. Occidental Petroleum shares declined 2.2%, while Halliburton shares fell 3.6%. The S&P 500’s energy sector was recently down more than 3% on the day.

Concerns about a recession have also hit prices for base metals, such as copper. Copper fell 2.3% to $3.95 a pound.

“There is certainly an anxiousness in markets and that’s playing through in volatility,” said

Edward Park,

chief investment officer at U.K. investment firm Brooks Macdonald, adding that investors are likely awaiting fresh inflation data or a central bank meeting to assess their future trades.

In energy markets, Brent crude, the international benchmark for oil prices, dropped 2.4% to $111.90 a barrel. President Biden is planning to call for a temporary suspension of the federal gasoline tax, The Wall Street Journal reported. Energy prices remain near historically high levels as Russia’s invasion of Ukraine has caused Western nations to move rapidly away from Moscow’s supplies. 

“This is a reminder for markets that governments are unlikely to sit back and take a higher oil prices,” Mr. Park said. 

The dollar value of bitcoin, the world’s largest cryptocurrency by market value, edged down 3.1% from its 5 p.m. ET level Tuesday to trade at about $20,195, according to CoinDesk. Cryptocurrencies have fallen recently amid broad investor desire to get out of speculative assets and concerns about the future of some crypto companies. 

Shares of cryptocurrency exchange Coinbase Global declined 6.9%.

Overseas, the pan-continental Stoxx Europe 600 declined 0.7% In Asia, major indexes closed with losses. South Korea’s Kospi declined 2.7%, China’s Shanghai Composite fell 1.2% and Japan’s Nikkei 225 edged down 0.4%.

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com and Karen Langley at karen.langley@wsj.com