A sharp sell-off left the Dow Jones Industrial Average more than 1,000 points lower Thursday, wiping out the gains from Wall Street's biggest rally in two years, as worries grow that the higher interest rates the Federal Reserve is using in its fight against inflation will derail the economy.

“Yesterday’s sharp rally was not rooted in reality and today’s dramatic selloff is a reversal of that misplaced exuberance,” said Ben Kirby, co-head of investments at Thornburg Investment Management to AP.

On Wednesday, the Federal Reserve announced a widely expected half-percentage point increase in its short-term interest rate. Stocks bounced around following the move but then sharply rose as bond yields fell after Fed Chair Jerome Powell reassured investors by saying the central bank wasn’t considering shifting to more aggressive, three-quarters point rate hikes as the Fed continues with further rate increases in coming months.

With text inputs from AP

Watch the accompanying video of CNBC-TV18’s Prashant Nair where he explains what drove the sell-off

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First Published:May 6, 2022 9:19 AM IST