Stocks on Wall Street closed sharply lower on Tuesday after Federal Reserve Chairman Jerome Powell indicated that the central bank's interest rates could exceed its initial estimates.
Mr Powell was addressing the US Senate Banking Committee after economic data for January came in stronger than anticipated.
Consumer spending remains resilient, the unemployment rate remains at a 53-year low and the Fed's preferred inflation gauge rose by 0.5 per cent.
That data has “partly reversed the softening trends”, Mr Powell said.
“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” he told the committee.
“Although inflation has been moderating in recent months, the process of getting inflation back down to two per cent has a long way to go and is likely to be bumpy.”
Wall Street shares continued their fall until trading closed. The Dow dropped 574 points while the S&P 500 and Nasdaq Composite dipped 1.53 per cent and 1.25 per cent.
The 10-year Treasury, which is a benchmark for other borrowing rates, neared 4 per cent before falling back to 3.97 per cent.
Tuesday's appearance before the committee was Mr Powell's first testimony since the Fed began its battle against inflation.
When he spoke to politicians on March 3 last year, interest rates were near nil. Today, the rate stands near 4.6 per cent.
The Fed has announced eight interest rates rises since Mr Powell last testified before Congress, but inflation still remains well above the central bank's 2 per cent goal.
He has since cautioned that the Fed would continue to maintain a restrictive stance.
“We will stay the course until the job is done,” Mr Powell said.
Traders now expect the Fed to announce another interest-rate rise of 50 basis points this month, CME's FedWatch tool shows, which would bring interest rates to the range of 5.25-5.50 per cent.
The Labour Department this week will also be releasing last week's jobless claims and last month's closely monitored unemployment report, which could worry traders even more.
The Fed will also receive the Consumer Price Index for February next week before its March 21-22 meeting.
Mr Powell's testimony on Capitol Hill was part of his semi-annual Monetary Policy Report to Congress.
He is scheduled to testify before a US House committee on Wednesday.
Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
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Directed by: David Yates
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