Stocks Plunge to Year's Lows

Some market watchers have been skeptical of the Fed throughout the recent climate of interest-rate speculation, accusing the central bank of falling behind the curve on monetary policy by staying in a position of generous accommodation while an economic pick-up was already evident. Some have raised the possibility of an inter-meeting rate-hike happening before the Fed meets again in June.

But Robert Pavlik, a portfolio manager at Oaktree Asset Management, rejects this notion. He projects a rate-hike of 25 basis points in June, followed by another possible hike at the August meeting. "I think the Fed has done the right thing in taking this slow because before some of the recent economic data came out, it certainly looked like the economy was on the fence -- they didn't know which way it was going to go," he said. "I hope that when the rate hike finally comes, it will stabilize the markets, but there is a likelihood that we have two or maybe three hikes on the way. The first one, or 25-basis points, is priced in, but what comes after that?"

"From an investor's standpoint, I hope [action from the Fed] will slow things down," he added. "But, I'll be honest with you. I don't think it will."

International markets were also bathed in red Monday following Friday's jobless number, which showed the U.S. economy added 288,000 jobs, heightening concerns about a Federal Reserve interest rate increase. London's FTSE 100 closed down 2.3% to 4395, while Germany's Xetra DAX lost 2.8% to 3785. In Asia, Japan's Nikkei tumbled 4.8% to 10,885, while Hong Kong's Hang Seng lost 3.6% to 11,786.

Also weighing on the financial markets was the newest round of criticism of the Bush administration and its handling of the war of Iraq. Reports of widespread abuse of Iraqi prisoners at the Abu Ghraib prison, along with the intensified violence that has plagued the occupation in recent months, have led to widespread uncertainty about the final outcome of the country's foray into the region. On Monday, President Bush issued a strong endorsement of his embattled Secretary of Defense Donald Rumsfeld while critics continued to call for his resignation.