Stocks fall sharply as Fed’s hawkish stance on future hikes spooks investors

Shaken by the Federal Reserve’s aggressive stance on an impending rate hike, US stocks fell sharply on Friday, pointing major markets to another weekly loss.

The S&P was down 55 points, or 1.4%, at 3,840 in morning trading. The Dow Jones Industrial Average fell 430 points, or 1.3%, to 33,851, while the Nasdaq also fell 1.3% after a brief rally.

The Fed is slowing the pace of its rate hikes, but indicated rates will remain higher than previously expected in the coming years. That has disappointed investors who had hoped recent signs that inflation was easing would persuade the Fed to ease on the brakes it applied to the US economy.

“The FOMC sent clear signals on Wednesday that it does not believe it has accomplished its mission of restoring price stability,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a research note. “The wide range of comments from top officials on Thursday indicate that other central bankers also believe more tightening is needed,” he added.

The federal funds rate is in the range of 4.25% to 4.5% highest level in 15 years, Fed policymakers expect the central bank rate to reach a range of 5% to 5.25% by the end of 2023. His forecast does not call for a rate cut before 2024.

Many believed that with inflationary pressures slowly easing, the Fed could soon announce some progress in their fight and perhaps even reverse course and cut rates sometime in 2023.

“US stocks are falling as investors can’t shake all the dodgy statements coming from central bankers this week and the private sector posted an apparently strong decline,” Edward Moya, senior market analyst at OANDA, wrote in an email. ” “Recession risks will only increase now” [Federal Reserve Chairman Jerome] Powell has indicated that we should expect ‘sustained growth’.”

Other analysts anticipate greater disagreement over the right approach to reducing inflation next year.

“In terms of monetary policy, the relatively soft CPI print in October and November will lead to more heated debate around the path for monetary policy in 2023. That said, we think the cooling labor market and prior housing services on core services would keep the Fed on track to hike by 50 bp in February and 25 bp in March, resulting in a terminal rate of 5.0-5.25%, analysts at Bank of America Global Research said in a report. .

rate hike in europe

The latest wave of selling came after central banks in Europe raised interest rates a day after the US Federal Reserve did so, stressing that interest rates will have to go higher than previously expected to reduce inflation.

Like the Fed, central bank officials in Europe said inflation has not yet recovered and more rate hikes are on the way. The European Central Bank, the Bank of England, and the central bank of Switzerland pushed through half-point hikes on Thursday.

“We are in for a long game,” Christine Lagarde, president of the European Central Bank, told a news conference on Thursday.

On Thursday, the S&P 500 fell 2.5%, the tech-heavy Nasdaq Composite fell 3.2% and the Dow returned 2.2%. Barring a strong reversal, the major indices closed with losses for the second week in a row.

In Asia, China’s move to rest COVID-19 Restrictions That has fueled hopes of ending mass disruptions from the lockdown and other strict measures to contain infections. But signs of a rapidly rising number of cases have raised uncertainty, with some worried about the possibility that the pandemic will continue to drag on the economy.

“Tight financial conditions and China’s largest COVID-19 outbreak mean that global economic growth will slow further in the first quarter of next year,” said Caroline Bain, principal commodities economist at Capital Economics.

“Investors will be averse to bearish risk aversion, which will further reduce commodity prices. However, as global activity growth begins to recover from Q2, we expect an increase in commodity demand and an increase in prices.” investor risk appetite will improve. Told.

Federal Reserve Chair says rate cut unlikely in 2023


Inflation battle continues

The central bank is fighting to tame inflation at the same time, including in pockets of the economy. employment And consumer spending remains strong. This has made it difficult to rein in the high prices of everything from food to clothing.

On Thursday, the government reported that the number of Americans applying for unemployment benefits fell last week, a sign that the labor market remains strong. Meanwhile, another report showed that retail sales declined in November. That pullback followed a sharp rise in October.

In other Friday trading, benchmark US crude oil gained $1.79 to $74.32 a barrel in electronic trading on the New York Mercantile Exchange. On Thursday, it fell by $1.17 to $76.11 per barrel.

Brent crude, the pricing base for international trade, rose $1.90 to $79.31 a barrel.

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