The Dow Jones Industrial Average plunged 1,175.21 points, or 4.6 percent, closing at 24,345.75. The Federal Reserve's preferred inflation gauge shows that prices rose only 1.7 percent in December from a year earlier, below the average 2.2 percent annual increase over the past 30 years.
During an appearance on CNBC's Power Lunch, veteran banking analyst Dick Bove downplayed the impact of the Fed's actions, saying, "There will be no reduction in the ability of this company to lend money, take in deposits, or operate the way they have historically".
"The stock market has smashed one record after another, gaining $8 trillion in value", the president said during his first State of the Union address on January 30.
Although expansion progressed progressively over past nine years, inflation remained mysteriously low, as Powell acknowledged. It seems the Fed will be faced with a new challenge after Janet Yellen's departure, and investors are adjusting fast to the new reality.
Before Monday, the biggest one-day drop in the Dow was on September 29, 2008, when the index plunged 777.68 points, or about 7 percent. He voted along with Yellen on Friday to order Wells Fargo & Co.to cap its growth and improve its corporate governance in the wake of the bank's unauthorized accounts scandal. Brent crude, which is used to price worldwide oils, shed 62 cents to $67.00 per barrel. Exxon Mobil fell -5.69% and Chevron dropped -5.03% after profit misses.
Other indices also declined. Australia's benchmark S&P ASX 200 slid 3.4 percent, South Korea's Kospi declined 2.4 percent and the Shanghai Composite index was off 2.2 percent.
Bank shares and energy companie slid on Monday, although losses were widely felt.
The broader Standard & Poor's 500 index was up 36 points, or 1.3 percent, at 2,685.
The market is coming off its worst week in two years.
"The Fed has been predicting inflation and interest rates would go up since 2013", Slok said. That was the fastest growth in nearly a decade, evidence that the extraordinarily low unemployment rate was forcing employers to pay higher wages. The same is true of many global markets, where investors have been bracing for a correction while hoping not to see one.
The fear is that monetary policy can now be influenced by five related factors, which can lead Powell to be more aggressive with rising rates: impact of fiscal stimulus on growth, increase in public deficit, rising wages for a job market in full employment, increasing inflationary pressure and market level.
"If there is one thing stocks hate is a rising rate environment", wrote Paul Nolte, a senior vice president and portfolio manager at Kingsview Asset Management. By promising to keep its policy rate (the federal funds rate) near zero "for a considerable period of time" and engaging in large-scale asset purchases, known as "quantitative easing", the Fed hoped to boost asset prices and stimulate the economy.